Taxpayers are starting to see bigger paychecks as a result of the new tax law, which Republicans hope will pay off for them in the midterm elections.
Democrats warn that Republicans may be overpromising, and have expressed concerns that a number of taxpayers expecting refunds may instead end up owing the IRS money next year.
The growing paychecks reflect the new withholding guidance issued by the IRS last month following enactment of the tax law. The guidance adjusts the amounts that companies take from their employees' paychecks for federal taxes.
In most cases, taxpayers will have less money withheld from their paychecks, but the exact size of the boost depends of people’s income and other factors.
Republicans say the increases in people’s after-tax incomes are just one sign of the new law’s success. They have attacked House Minority Leader Nancy PelosiNancy PelosiOn The Money — Presented by Wells Fargo — Pelosi plows full speed ahead on jam-packed agenda Jan. 6 committee taps former Bush administration official as top lawyer Ocasio-Cortez, Bush push to add expanded unemployment in .5T spending plan MORE (D-Calif.) for suggesting that the law is “armageddon” and that bonuses companies have announced are “crumbs.”
“Take home pay is going up, wages are going up, benefits are going up, businesses are expanding,” Speaker Paul RyanPaul Davis RyanPaul Ryan researched narcissistic personality disorder after Trump win: book Paul Ryan says it's 'really clear' Biden won election: 'It was not rigged. It was not stolen' Democrats fret over Trump-district retirements ahead of midterms MORE (R-Wis.) said at the recent GOP retreat in West Virginia.
But touting the bigger paychecks comes with some risks for Republicans, too.
Ryan deleted a tweet last weekend that highlighted a $1.50 weekly paycheck gain for a high school secretary in Pennsylvania, which Democrats used to bolster their arguments that the tax law is mostly helping the rich.
“The American people are being bamboozled by rhetoric that doesn’t match the reality,” said Rep. Brian HigginsBrian HigginsBiden's keeping the Canada-US border closed makes no sense Biden administration stokes frustration over Canada Canadian ambassador calls for close coordination in handling of US border MORE (D-N.Y.), a member of the House Ways and Means Committee. “The reality is that this tax cut disproportionately, clearly, unequivocally, benefits the very, very, wealthy. And this is a continuing ploy, scheme, scam on the part of House Republican leadership to deliberately mislead people into believing that these tax cuts will go toward middle America.”
When asked about the tweet on Thursday, Ryan laughed and shifted to talking about how the legislation is helping people.
“You know what I know, the average family of four in America is getting a $2,000 tax cut,” he said. “You know what I know, we’ve got billions of dollars that are going into bonuses.”
Key Democrats have raised concerns that Trump administration officials may have put political pressure on the IRS to update the withholding tables so that people see bigger boosts to their paychecks ahead of the midterms than is appropriate.
Senate Finance Committee ranking member Ron WydenRonald (Ron) Lee WydenWant a clean energy future? Look to the tax code Democrats brace for toughest stretch yet with Biden agenda Lawmakers lay out arguments for boosting clean energy through infrastructure MORE (D-Ore.) and House Ways and Means Committee ranking member Richard NealRichard Edmund NealWant a clean energy future? Look to the tax code Democrats brace for toughest stretch yet with Biden agenda The Hill's Morning Report - Presented by National Industries for the Blind - What do Manchin and Sinema want? MORE (D-Mass.) have asked the Government Accountability Office to take a look at the new withholding tables.
“The real question with respect to withholding is being straight with the American people, and if you play games with this in order to advance a political agenda, [then] Americans get hurt," Wyden said.
Treasury Secretary Steven MnuchinSteven MnuchinMenendez, Rubio ask Yellen to probe meatpacker JBS The Hill's Morning Report - Presented by Goldman Sachs - Biden rallies Senate Dems behind mammoth spending plan Mnuchin dodges CNBC questions on whether Trump lying over election MORE, however, has refuted the notion that the tables were manipulated for political reasons, saying in January that “any claims that we're doing this for political issues are ridiculous.” And House Ways and Means Committee Chairman Kevin BradyKevin Patrick BradyHouse panel advances key portion of Democrats' .5T bill LIVE COVERAGE: Ways and Means to conclude work on .5T package LIVE COVERAGE: Tax hikes take center stage in Ways and Means markup MORE (R-Texas) expressed confidence in the tables’ accuracy.
“[The] Treasury Department started early once the tax reform got to the president’s desk to make sure the tax tables are accurate,” he told reporters Tuesday.
Republicans are hoping that by aggressively touting the benefits of the tax law, they can bolster their chances of keeping their majority in the midterm elections amid President TrumpDonald TrumpOvernight Defense & National Security — The Pentagon's deadly mistake Overnight Energy & Environment — Presented by Climate Power — Interior returns BLM HQ to Washington France pulls ambassadors to US, Australia in protest of submarine deal MORE’s low approval rating.
The GOP has started to see the tax law become more popular as companies have announced bonuses in the wake of the law’s passage, and lawmakers predict the measure will gain even more support as people see bigger paychecks.
Republicans are calling on the public to look at their paychecks to see their tax cut. Ways and Means Committee Republicans issued a press release last month that shows taxpayers where they can see on their pay stubs they are getting more take-home pay.
“This month you’re beginning to see check your check,” House Majority Leader Kevin McCarthyKevin McCarthyOvernight Hillicon Valley — Scrutiny over Instagram's impact on teens Top Democrats tout California recall with an eye toward 2022 Former national security officials warn antitrust bills could help China in tech race MORE (R-Calif.) said at a news conference Tuesday. “Individuals are getting more in their paychecks simply because [of] the withholding and the tax benefits from the tax bill.”
The IRS updated withholding tables to reflect three main elements of the tax law: lower tax rates, the near doubling of the standard deduction and the repeal of personal exemptions. Mnuchin said about 90 percent of wage earners will see bigger paychecks as a result of the new tables.
Some will see a bigger increase than others.
According to the Urban-Brookings Tax Policy Center, a taxpayer with income of between $48,600 and $86,100 will see an average tax cut for 2018 of $930. That translates to an increase in take-home pay of about $35 per paycheck, if the tax cut is spread out equally among biweekly paychecks.
Those in lower income groups will see less of a tax cut on average, while those in higher income groups on average will see bigger tax cuts.
The IRS expects the percentage of people who get refunds when they file their tax returns to remain about the same under the new law. More than 70 percent of taxpayers have received refunds in recent years.
Tax experts predict that people with simple tax situations won’t run into a situation where they suddenly don’t receive a refund.
But those with more involved returns could find that their end-of-year situation is different because of changes the tax law made to deductions and credits.
“There’s winners and losers under this new legislation,” said Mark Kohler, a certified public accountant, attorney and a senior tax adviser for TaxSlayer.
Withholding is based on taxpayers’ incomes as well as the number of allowances they claim on W-4 forms. Taxpayers claim more allowances, and get less withheld from their paychecks, if they expect to get more benefits from exemptions, deductions and credits.
Taxpayers who claimed a lot of allowances because they benefited greatly from itemized deductions under the old tax law might find that they owe the IRS when they file their 2018 tax returns next year. This may particularly be the case for people who live in high-tax states and relied heavily in the past on the state and local tax deduction, which is capped in the new law at $10,000.
On the other hand, families with children may get the more welcome surprise of a larger than expected refund if too much money is withheld from their paychecks, as the new law increases the child tax credit.
The IRS is planning to release a calculator later this month that will help people figure out if they should adjust their withholding, as well as a new W-4 form that employees use to direct their employers on their withholding. The agency is planning a bigger revamp of the W-4 form for 2019.
Tax professionals are encouraging people — especially those who don’t have simple returns — to look at the calculator, consult with their tax advisers and update their W-4s if appropriate.
“If it’s not simple, don’t guess,” said Cari Weston, director of tax practice and ethics with the American Institute of CPAs.