My Last Paycheck Looked Bigger – Why?

If your last paycheck looked bigger, there is a good reason – as employers begin implementing the new withholding tables from the IRS, employees are starting to see a slight increase in their net pay. The new tables are a result of the recent tax reform legislation, and as employers begin to withhold less based on the IRS’ guidelines, the difference is appearing on paychecks. Employers have until February 15, 2018 to implement the withholding changes.

How much of an increase an employee will see depends on things like the number of allowances they are withholding on their W-4, their pay frequency, and how much their gross wages are. A middle-income family would, on average, see an increase in their net pay by about 1.6 percent, with an average tax cut of around $930 this year, according to the Tax Policy Center, a non-partisan entity.

A new IRS calculator will be available later in February, and many tax experts recommend employees use it to make sure they are having the correct amount withheld from their paychecks. After the IRS releases a revised Form W-4 later this year, employees should update their information on the form.

The Tax Policy Center also says that workers should not feel any negative impact from the new withholding table, unless their pay rate has changed. Workers who recently received a raise, or employees of companies that paid out bonuses following the tax reform law’s passage, may now fall into a higher tax bracket and therefore not get the benefit of the new tax law. If an employee’s health insurance premiums have gone up or their state taxes have increased, this may also prevent them from receiving the increase in net pay.