Bigger paycheck raises tax warning

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Now that you’ve mailed in your taxes, here’s something new to worry about: If your paycheck is suddenly a little bigger, you may have a problem come next April 15.

Here’s how it works, according to Harriet Johnson Brackey, who writes and blogs about personal finance for Tribune sister newspaper the South Florida Sun-Sentinel.

Employers started using a new withholding tax table, effective April 1. In one of many recent
tax law changes, Congress decided to give wage earners a payroll-tax cut of up to $400 per person. The plan was to get this money into workers’ hands quickly and out into the economy. Rather than wage earners waiting until next year to file their taxes and get the benefit of this tax cut, the goal was to take less out of paychecks starting now. But the new withholding tables in some cases cut too much. If that happens, you’ll have to pay it back next year.

The tax and accounting business of Thomson Reuters looked at the new tables and found that for a husband and wife who each earn $75,000, the new tables might mean a cut of $1,228 cut in payroll taxes. But their maximum new tax credit is only $800. So next year, they’d have to pay the extra $428 back.

To figure out what to do next, check out IRS Publication 919 on how to adjust your tax withholding.

It’s better to plan ahead and deal with it now than to be digging for money in the couch cushions next April.

-- Nancy Rivera Brooks