Tax cut will put more money in paychecks

The new federal tax plan is now in effect — and it’s going to mean more spending money for most people, at least in the short term.

Most workers across the country will have less tax money withheld from their pay, now that the Internal Revenue Service has released new withholding tables and instructed employers to make adjustments.

How much will paychecks change?

The exact amount will vary depending on an individual’s earnings, frequency of pay, and whether deductions are claimed. Treasury Secretary Steven Mnuchin said 90 percent of workers will see an increase in their paychecks. The Tax Policy Center, meanwhile, said 80 percent of taxpayers will receive an overall tax cut in the 2018 tax year.

A single person who earns $50,000 a year, has no children, claims no deductions, and is paid biweekly could receive as much as $61 more per paycheck under the new tax structure.

A married couple with two children under 17 and a household income of $75,000 would receive an overall tax break of $2,119 in 2018, according to a Tax Policy Center analysis. A married couple with two children and an income of $30,000, meanwhile, would receive a tax break of $817 — or roughly the same percentage.

When will these changes appear in paychecks?

The IRS guidelines, published last month, instructed employers to implement changes by Feb. 15.

For payroll departments, making changes quickly — during weeks when they were also sending out W-2 forms to employees for their 2017 taxes — was a challenge, said Alice Jacobsohn, senior manager of government relations for the American Payroll Association.

Companies that use software services or vendors for payrolls needed to ensure those third parties make adjustments, and then test the changes themselves, Jacobsohn said.

Will these changes impact the economy?

Pennsylvania’s Independent Fiscal Office predicts that extra money for residents will mean a boost for the state economy.

Consumers are likely to spend more. That spending raises more sales tax for the state, said Matthew Knittel, director of the Independent Fiscal Office in Harrisburg. Companies have also received tax cuts, leading to increases in dividends and capital gains, he said.

“We are expecting a short-term boost of economic growth in the next year or two,” Knittel said. “Long term, it’s less clear whether it will boost economic growth, and one of the concerns is that the higher federal debt will drive up interest rates.”

Disposable income in Pennsylvania could increase by at least $7 billion in the fiscal year that begins in July, Knittel’s office said, citing other reports. Sales tax revenue could increase by between $10 million and $20 million in the current fiscal year, according to the Independent Fiscal Office, and by between $60 million and $80 million in fiscal year 2018-2019.

Are more changes coming?

The payroll changes going into effect may not be the last change of the year. IRS officials said they are revising the W-4 form, which employees fill out to claim deductions and give employers guidance on how much to withhold from their pay. Jacobsohn, of the American Payroll Association, said a big change to the form could require new computer software for employees. That could take months to implement, she said.