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Tax changes
should show up in paychecks soon
Workers will be getting
more money in their paychecks thanks to the Jobs and Growth Tax Relief
Reconciliation Act of2003. New withholding tables incorporate the lower
tax rates for employers to use when figuring the federal income tax to
withhold from their employees' wages.
Employers should
use these new tables as soon as they can work them into their payroll
systems, but not later than July 1. By the third week of June, employers
can expect to find in the mail a printed copy of the 64-page Publication
15-T containing all the tables.
In making tax
rate changes retroactive to the beginning of 2003, Congress recognized
that tax withholding has already occurred at the higher rates required
under the prior law.
The new law's
Conference Report states that "taxpayers who have been overwithheld
as a consequence of this (should) obtain a refund of this overwithholding
through the normal process of filing an income tax return, and not through
the payor."
Therefore,
employers and others that withhold taxes should not attempt to "correct"
amounts withheld at the rates required under the law before they could
implement the new withholding rates.
Employees may
adjust their withholding to bring the tax paid closer to the tax owed,
but they may not claim more allowances than they are entitled to, based
on their expected exemptions, deductions and credits.
To avoid an
estimated tax penalty for not paying enough during the year, they may
want to see how much their withholding drops before making further adjustments.
The new law
extended the 10 percent rate to cover the first $7,000 of taxable income
for single persons, $14,000 for married couples. It also lowered the tax
rates above 15 percent to 25, 28, 33 and 35 percent. This is a drop of
two percentage points for each rate except the top one, which went down
3.6 points.
The new law
also raised the standard deduction for married couples to $9,500 and extended
their 15 percent tax rate to $56,800 of taxable income. Each figure is
double the number for single taxpayers. The changes reduce the "marriage
penalty" the difference between the tax couples pay and the
amount they would have paid as two single persons.
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