TCU’s Human Resources Payroll Office is in the process of updating its payroll policies, including the withholding tables, to comply with the Tax Cuts and Jobs Act. The TCJA reduces taxes for all wages paid after Dec. 31, 2017, and modifies policies, credits and deductions for individuals.
Beginning Feb. 16, TCU bi-weekly paid employees may see an increase in their net pay (bring home pay) as a result of this legislative action. Beginning Feb. 28, TCU monthly paid employees may see a similar increase in net pay.
This reduction in withholdings stems from a change to the tax rate. While existing tax brackets remain intact under the TCJA, tax rates for each bracket are decreasing by 2.6 to 4 percent, depending on taxable income.
For example, in 2017 a single taxpayer with $40,000 of taxable income fell within the 25 percent tax bracket and would have paid $5,739 in taxes. Under the TCJA, in 2018 using the same scenario this employee now falls within the 22 percent tax bracket and will pay $4,740 in taxes.
Accompanying this change in the tax rate is the elimination or modification of several deductions, including many outlined on the W-4 (Employee’s Withholding Allowance Certificate) form. In the coming weeks, the IRS is expected to release an updated W-4 form which will reflect changes under the TCJA. Until the new W-4 is released, employees may consider maintaining their current withholdings while awaiting further information from the IRS.
Answers to the most commonly asked questions by TCU employees are available here. Additional information regarding the withholding tables is available on the IRS Withholding Tables Frequently Asked Questions page. We encourage you to speak with a tax accountant or financial planner to determine the best way to reduce taxable income and ensure proper withholdings under the TCJA.