Millions of Americans will need to use a new Internal Revenue Service tool to ensure their new paychecks are accurate, Trump administration officials said Thursday as they issued guidelines for implementing the recently passed tax law.
The guidelines are necessary for businesses to calculate how much to withhold in taxes from employees’ paychecks beginning as soon as next month. The White House said Thursday businesses should make these adjustments by Feb. 15, part of the administration’s push for millions of workers to see bigger paychecks as quickly as possible.
In rushing the process, the Treasury Department is asking companies to rely on outdated forms to help determine how much to withhold.
A senior Internal Revenue Service official said Thursday that Americans with simple tax situations would likely get accurate paychecks next month. But many Americans, including those who tend to itemize their tax returns, would need to use the online tool to ensure they aren’t dramatically overpaying or underpaying their taxes.
If they find their paychecks are inaccurate, it will be incumbent on the employees to tell their employers to make corrections.
The patchwork system is part of a rushed transition the White House is trying to push through to allow as many Americans as possible to see bigger paychecks next month.
The new guidelines incorporate lower tax rates that were central to the tax overhaul from Congress’ December tax overhaul. Trump administration officials said that the new guidelines should lead to bigger paychecks for 90 percent of all wage earners.
“These tax cuts will ensure that American workers are able to keep more of their hard-earned income and decide how to spend, invest or save it,” Treasury Secretary Steven Mnuchin said in a statement.
But these tax withholding decisions are based on tax forms Americans file with their employers, known as W-4s, that were written to apply to an outdated tax system. The Treasury Department and Internal Revenue Service are designing new W-4 forms that millions of Americans will likely fill out later this year to make their tax withholdings more accurate in the future, but they won’t be ready in time for the paycheck adjustments next month.
Senior Treasury Department officials said they expect employers to update their systems so that the new withholding tables go into effect by February 15.
Americans typically have federal income taxes withheld from their paychecks, money that is aggregated over the course of the year to account for a person’s federal tax liability. Then that person files their tax return by the following April, and if their tax payments were too high or too low, they must account for the difference through a refund or payment. Currently, 76 percent of Americans who file their taxes receive a tax refund. A senior IRS official said he expected that level to fall just a bit next year to around 73 percent.
But Democrats have alleged the number could fall much more, accusing the White House of changing the tax tables in a way that will have Americans dramatically underwithhold their tax payments during the year only to be hit with big tax bills next year. They have ordered a review by the Government Accountability Office to determine whether the new tax guidelines are accurate.
“Republicans are using brute force and speed to implement a law that will deliver a financial blow to hardworking Americans all across the country,” Sen. Ron Wyden, D-Oregon, said. “I look forward to GAO’s independent review of these tables, which will expose whether the Trump administration is tampering with Americans’ paychecks, resulting in a whopping tax bill next year.”
Many Americans will likely see changes and adjustments this year in their tax payments as the law goes into effect.
The law lowers tax rates, which is the primary reason Americans will see bigger paychecks next month, but it also limits or scales back tax deductions, changes that might not be realized until Americans file their tax returns.
For example, there is a new $10,000 limit on the amount of state and local taxes a household can deduct from federal income. There are also new limits on the mortgage interest deduction, and the Child Tax Credit was expanded.
Senior IRS and Treasury Department officials told reporters Thursday that they would be encouraging all Americans to proactively use a new IRS tax calculator in late February to help them determine if their paychecks are accurate. If they determine they are paying too much or too little in taxes, based on the size of their family or other variables, they can direct their employer to make changes.
Americans will not be asked to input personal information into this online calculator, such as their names or Social Security Numbers, but they will need to input their income levels, family status, and a number of other details.
Employers must now rush to incorporate the new tax withholding tables into their payroll systems, a process that is expected to take several weeks.
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