Mnuchin: Taxpayers should see tax cuts in February paychecks
WASHINGTON — Taxpayers should start seeing the effects of tax changes in their take-home pay as soon as Feb. 1 and no later than Feb. 15, Treasury Secretary Steven Mnuchin said Thursday.
New withholding tables published by the Internal Revenue Service Thursday should allow employers time to adjust workers’ paychecks in response to significant changes in tax law, he said.
For individual taxpayers, those changes include a reduction of tax rates, a change in tax brackets, the increase in the standard deduction and the elimination of personal exemptions — all key factors in determining how much money the government takes out of worker paychecks.
” These new tables will help deliver the tax cuts as soon as possible to as many Americans as possible, with as little disruption as possible,” Mnuchin said at the White House press briefing. “This will continue to focus and fuel the optimism and economic growth that is returning to this country.”
Most workers won’t have to submit any tax forms to see a change in their withholding.
However, the new withholding guidance is the first step in implementing changes in how the IRS will collect taxes from employee paychecks. The agency is also developing a new withholding calculator — available by the end of February — to allow taxpayers to more accurately determine their withholding, and creating a new W-4 form for the 2019 tax year.
If taxpayers have too little withheld this year, they could be hit with a surprise tax bill next year — with possible interest and penalties. Top Democrats on the congressional tax-writing committees have asked the independent Government Accountability Office to also review the IRS tables to ensure that problem doesn’t happen.
More: IRS may need an extra half billion dollars to implement new tax law over the next two years
The Treasury Department estimates that 90% of individual taxpayers will see an increase in their take-home pay.
But taxpayers in some high-tax states could see sticker shock. The tax code now limits the deduction for state and local taxes to $10,000.
Mnuchin threw cold water Thursday on a proposal floated by two such states — California and New Jersey — to get around the $10,000 limit on deducting state and local taxes from federal income.
That gambit would allow taxpayers to reduce their state and local taxes by contributing to a government created charity — thus making them tax deductible.
More: High-tax states plot ways to get around new limit on federal tax deductions
“I don’t want to speculate on what people will do,” Mnuchin said Thursday. “But I think it’s one of the more ridiculous comments to think that you can take a real estate tax that you’re required to make, and dress that up as a charitable contribution.”
“I hope that the states are more focused on cutting their budgets and giving tax cuts to their people in their states than they are on trying to evade the law,” he said.
One expert said the New Jersey and California plans have a fatal flaw.
“If the benefit is exclusively for the donor, it violates a bright-line rule,” said Jared Walczak of the Tax Foundation. “To be a charitable contribution, it has to have charitable intent and an actual charitable benefit.
“When you put land in easement, the state is gaining a benefit. When someone makes a charitable contribution in lieu of taxes, state has obtained no benefit. It’s taxes simply being called by another name,” he said.