Sanders Offner has had good news for most clients calling lately with questions after noticing a higher-than-usual take-home pay. It wasn't a mistake.
"The phone calls that we get primarily are because the employees think that something's wrong with their paycheck," said Offner, president and co-owner of Metairie-based Crescent Payroll Solutions. "I think 99 percent of the time it's a call that's in their favor."
All told, the hard-fought tax overhaul that dominated the national dialogue in recent months is now beginning to deliver a change that many will welcome — bigger paychecks.
Workers are starting to see more take-home pay as employers implement the new withholding guidelines from the IRS, dictating how much employers withhold from pay for federal taxes. Treasury Secretary Steven Mnuchin has estimated that the new rules will mean more take-home pay for about 90 percent of American workers.
How much extra cash? It 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.
Offner's firm, which handles payroll for "the one-employee grass cutter to thousands of employees grocery store chains," had notified clients ahead of time about the new withholding guidelines being released by the IRS. The guidelines are essentially an algorithm showing how much employers should withhold from pay for federal taxes; employers have until Feb. 15 to make the changes.
Out of the calls he's fielded, Offner has heard of cases where paychecks ranged from $50 to $200 higher than usual.
"We're obviously not getting any upset clients," Offner quipped.
Likewise, Netchex, a Covington-based online payroll and human resources company, hasn't had complaints.
"It's quite a good call," said Brian Laiche, director of client services. "We can't take the credit for it. We simply advise, factually, that the lower withholding that you experienced on this paycheck is probably a result of the adjustments of the new federal tax tables."
According to the nonpartisan Tax Policy Center, a middle-income household would on average get a tax cut of $930 this year, lifting after-tax income by about 1.6 percent. That increase won't be perfectly reflected in their paycheck though.
That's because lower tax withholding on paychecks is just a piece of a complicated set of changes to tax law that Republicans pushed through in December. And what your employer withholds is based on an estimate of your tax obligation that includes many complex factors, but it's not a perfect measure.
For businesses using third-party payroll services, adjusting to the new withholding guidelines will likely be a smooth transition, said Gerard Schreiber Jr., a Metairie-based certified public accountant.
Many employees will begin to see increases in their paychecks to reflect the new law this month, if not already. The time it will take for employees to see the changes in their paychecks will vary depending on how quickly the new tables are implemented by their employers and how often they are paid — generally weekly, biweekly or monthly.
"It's meant to reduce the tax burden for most individuals, so there's going to be isolated incidents where some people will pay more, but the idea is to put more money into people's pockets at the expense of the national debt going up," Schreiber said.
No worker should anticipate a negative impact from the new withholding table if their pay remained the same, said Joseph Rosenberg, a senior researcher at the nonpartisan Tax Policy Center.
However, someone who got a raise may face a higher tax rate as a result. Some corporations have been handing out bonuses and wage increases in reaction to passage of the law. A worker's net pay may also fall if other factors that go into their paycheck changed — such as an increase in health insurance premiums or higher state taxes.
As a result of all the changes, taxpayers may find they are unintentionally over- or underwithholding for their taxes if they don't do some legwork.
Senate Finance Committee Democrats have asked the Government Accountability Office to analyze the new tables to make sure workers' paychecks weren't being systematically underwithheld, which would make paychecks bigger now but lead to a bigger bill at tax time next year. Mnuchin, speaking at a White House press briefing, dismissed this notion as "ridiculous."
Still, experts suggest that all taxpayers take a look the new IRS calculator when it becomes available later in February to ensure they are having the correct amount withheld. And they should update the information on their W-4 after the IRS releases a revised version later this year.
For most people, though, no change will be needed.
The IRS said the new withholding tables should produce an accurate withholding amount for people with simpler tax situations. But tax experts say those who will still itemize, have larger families or more complicated tax situations may want to take a closer look.
For his part, Guy Williams, president and CEO of New Orleans-based Gulf Coast Bank and Trust, hadn't checked his recent pay stub to determine whether it was higher than usual. But dozens of the bank's employees have seen their wages rise since the tax legislation passed: Gulf Coast recently raised its minimum wage from $11 per hour to $12, a boost that lifted employees primarily in its retail banking division.
"The bank itself is going to be able to do more because the bank has a lower tax burden, and we'll be able to expand the bank more," said Williams, who estimated that the bank would save $5 million this year because its corporate tax rate fell from nearly 50 percent to about 32 percent.