Earlier this year, taxpayers across the country saw an increase in take-home pay on their paychecks due to the Tax Cuts and Jobs Act. The reduction in federal tax was welcomed, with average tax savings ranging from $1,400 to $2,917 depending on marital status and dependents. So, what have taxpayers been doing with this money? Spending it.
Tax Cuts and Increased Consumer Confidence
Thanks to tax cuts, a tight labor market and wage growth, retail sales rose 4.8 percent the first half of this year compared to 2017, according to The National Retail Federation. And this increase in consumer confidence has the 2018 holiday shopping season looking merry and bright. In fact, The National Retail Federation predicts retail sales to grow 4.5 percent this second half of 2018. Which aligns with a 2018 PwC survey, which revealed 84 percent of all consumers will spend the same or more than they did last holiday season.
The Downside of the Tax Cuts and Jobs Act
All of this sounds great, right? Well, yes and no. Due to the recent tax law changes, if wage earners have not performed an IRS recommended "paycheck checkup" to confirm accurate withholding, they may be in for an unpleasant surprise come tax time. Unfortunately, after all the holiday shopping sprees and travel have already occurred. While the IRS recommends taxpayers check their withholding at the beginning of each year, or when their personal circumstances change, the recent overhaul to the internal revenue code makes it especially important for everyone to perform a "paycheck checkup", but especially key groups identified by the IRS. As always, you are responsible for paying your tax bill and if you have overspent at the holidays and are unable to make full payment, you may be liable for penalties.
How to Ensure Proper Federal Withholding
So, what should wage earners do? Don’t worry; there’s an easy way to help ensure proper federal paycheck withholding - it’s called the paycheck checkup and our experienced payroll team has already written multiple blogs about it sharing a step-by-step guide, along with how to use the online IRS withholding calculator. Additionally, because the Tax Cuts and Jobs Act increased take-home pay, it resulted in the generation of more income available for state taxation. Here’s how to check your state withholding. Be sure to perform your paycheck checkup as soon as possible to ensure adequate time for any adjustments to be made.