Tax Overhaul Bigger Paychecks

This photo shows an IRS W-4 form on Thursday, Feb. 1, 2018, in New York. Workers are starting to see more take-home pay as employers implement the new withholding guidelines from the IRS. How much extra cash depends on several factors, such as workers' income, how often they are paid and the number of withholdings allowances they claim on their IRS Form W-4 with their employer. (AP Photo/Barbara Woike)

Louisiana taxpayers who saw increased take-home pay last month from changes to the federal tax law will soon start giving a bit of that money back — to the state.

Louisiana's income taxes are tied to federal income tax policy. The federal tax cuts passed by Congress in late 2017 increased take-home pay, generating more income for state taxation. The state updated tax withholding tables Friday to reflect the federal changes and ensure employers are withholding enough state tax from paychecks.

Here's how the give-and-take will work out this year for a married couple filing jointly with two dependents, earning an annual salary of $47,500:

Their paychecks will be boosted by $524 in total spread over the course of the year from the reduced federal withholding taxes. The changes in state tax tables mean $70 more taken out of their paycheck total for the year, said Brandon LaGarde, tax director for Postlethwaite & Netterville.

The net result: a $454 gain for the year.

“You’re still a bit ahead,” LaGarde said. And because the tax cuts will have more of an impact on wealthier filers, individuals and households that make more money will see bigger gains.

Louisiana is expected to collect an additional $226 million in personal income taxes annually because of the changes, money that will help lower a $1 billion budget gap.

Brian Laiche, director of customer service for Netchex, a Covington-based company that handles payroll for upwards of 225,000 employees — mostly in Louisiana — said the tax changes will be a boon for the state. “It’s a way to make up some of the budget challenges, by giving the state more revenue,” he said.

The new federal tax plan also increases the standard deduction for all taxpayers. That could lead to the state seeing more money, Laiche said, because fewer people are expected to file itemized deductions on their returns thanks to the bigger standard deduction.

“A lot of the itemization trails into state tax returns,” he said. “If people itemize less, that will reduce deductions and lead to more money for the state.”

Louisiana’s tax deductions are pegged in the state Constitution with federal taxes. What that means, explains Byron Henderson, a spokesman for the Louisiana Department of Revenue, is that when the federal taxes went down in the federal Tax Cuts and Jobs Act, the value of that state deduction wasn’t worth as much.

The department warned employers of the fact and updated the state’s income tax withholding. “We want to make sure that the proper amount is withheld because if it isn’t then taxpayers will receive a surprise bill,” Henderson said.

The department said employers should begin using the updated state withholding tables immediately to avoid penalties for businesses and any unexpected tax liabilities for workers. The tables are published in LAC 61:I.1501.

Mark Ballard of The Advocate Capitol news bureau contributed to this report.

Follow Timothy Boone on Twitter, @TCB_TheAdvocate.