The Tax Cuts and Jobs Act has taken effect and you and your employees may have noticed a change in take-home pay.
This happened because the marginal tax rate dropped for the average individual, but that doesn’t mean they can keep the extra money. If most of your employees received an increase in their pay, it might be prudent to caution them not to celebrate, just yet.
An increase in take-home pay will not necessarily translate to lower tax liability (what is owed when filing one’s taxes). Some people’s tax rate will be higher than the new base withholding rate that kicked in at the start of the year. Furthermore, with various deductions changing or going away, some employees may not have as much to deduct as they have in the past, while others may have more.
To help your personnel avoid confusion (and a nasty surprise when they file 2018 taxes next year), make them aware of the free “new tax calculators” currently posted online. These calculators, available from reputable financial-sector organizations, will show your employees what they are likely to owe at their current deduction level. One we like was posted by Market Watch.
After your employees have filed their 2017 taxes, they can use that data as a starting point to estimate their 2018 liability. By providing this information to your employees, you’ll help them determine a more accurate idea of how the tax changes really impact their after-tax income.
There is also an interesting comparison of how the new law impacts a variety of households, developed by the Tax Foundation. You can view it, here.