There’s nothing better to start a new year than a bigger paycheck.
No, I’m not talking about a raise or a bonus.
I’m talking about the newly updated IRS withholding tables. Your employer uses these bad boys to make sure you’re paying the right amount in taxes. The recent tax reform legislation enacted major changes to taxes. There were changes to tax brackets and deductions and in general meant lower taxes for most people.
These tables are a key component of that reduction as they push those benefits through to tax payers immediately. The idea is that since taxes are now lower then the amount that needs to be deducted from your paycheck is lower.
It’s likely that your first paycheck in 2018 didn’t look much different than your last one in 2017 in terms of federal taxes. That’s because your employer was still using the 2017 tables which reflected the old 2017 tax rates. These new tables, released on January 11th give them proper guidance on what to withhold based on the new lower tax rates. Employers should use these tables ASAP. That means it’s possible that the benefits of a lower tax rate will show up in your next paycheck! That’s only if your payroll department is efficient but if not then there’s a hard deadline of February 15th. After that, the extra cash will be in there for the rest of the year.
I’m no accountant but I still wanted to see the impact of these new tables on various income levels. I looked through the 2017 tables and the 2018 tables to figure out the difference a person will see in their paycheck. The difference varies by income level as tax brackets changed quite a bit. First, let’s take a look at the changes for those of us who aren’t married. I did this analysis for a bi-weekly pay schedule but the IRS notice does include tables for other pay period types.