How Your Paychecks Will Change In 2018

The new tax reform that was put into law later last year won't show on anyone's tax returns until next year in 2019. However, some workers are going to be noticing an immediate change on their paychecks this year because of the new tax withholding tables set into law with the reform. Calculating your new withholding can be pretty difficult because there are multiple things that need to be taken into consideration regarding your status and work. Below are some basic examples of people with common taxpayer situations which will be able to give you a quick look at what the impact is going to look like on your paycheck.

Single People With No Children Who Earn $25,000 A Year

For people who are in low-paying jobs, the main component that affects them with the new tax reform is the standard deduction. You would likely assume that there were going to be less taxes withheld out of each paycheck for taxpayers who have no children or dependents. In order to calculate this withholding, you are going to need to know exactly how many of the withholding allowances are going to be used. For typical single people without children or dependents, the withholding allowance is going to be one. The difference in the take-home amount for these people will go up by around $9 each week for those who have weekly earnings of around $480.77.

Married Taxpayers With Two Children Making $75,000 Each Year

Many families are going to see lots of changes with the new tax reform law set into place. The higher standard deductions that can be taken will be offset by the loss of personal exemptions. Going forward, however, married people with children will see higher child tax credits as well. All in all, it can't be clear what the impact is going to be on all married people. This is true even for the simple fact of using the standard deduction only. Families such as these would often get up to four withholding allowances.

Assuming in 2017 that a family would get earnings of around $3,125 twice a month, they would see a reduction of $168.80 reduced using the multiplication of the four withholding allowances. This would result in a paycheck with taxes around $274.57 being withheld each paycheck. Under the new tax laws in 2018, the new tax reduction would result in less being taken out each pay period. The difference would add up to around $56 extra each pay period. Over the course of a year, those savings add up to an extra $1,350 in income. The amount can really add up over the course of a full year.

Single Taxpayer As The Head Of The Household With One Child Making $300,000 A Year

A lot of Americans were against this new tax law reform because they feel that it was more weighted towards helping the high-income citizens. This seems to hold a little bit true when using the tax withholding tables in this situation. This is more true when assuming the size of their tax benefits that are produced. Assuming this person gets two tax withholding amounts, in 2017 they would have earnings around $25,000 be reduced by as much as $675 for the two allowances. In 2018, this same taxpayer's withholding allowances would go up to $691.60. The monthly difference using the new tax formula would mean that this person would get around an extra $206 each month.

Important Notes To Keep In Mind

All of the new tax law withholding tables are to be used for general informational purposes. They don't always take into account the whole picture to get a realistic estimate. Even though the new administration under President Trump expects there to be an equal number of claimed refunds this year, it is expected that everyone will most likely see huge savings from last year.

Additionally, the new tax law hasn't even been signed long enough for the IRS to update their Form W-4. This form is what your employers use to figure out what their employee's withholding amounts are going to be. These forms are expected to be ready by the end of this year. This means that it is important for you as a worker to take initiative and fill out a new form yourself so that your new withholding will be correct next year when you go to file your taxes.

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