January 28, 1992
New Tax Withholding Rates
Boost Take Home Pay
WASHINGTON - The majority of American workers will get an
advance payment on next year's federal income tax refund with new
tax withholding tables the Internal Revenue Service is sending to
The new withholding tables compensate for the fact that
currently millions of Americans are overwithheld and end up giving
the government an interest-free loan each year.
This permanent change in withholding will benefit low and
middle income wage earners, increasing their take home pay by about
$25 billion over the next twelve months. Thin increase will be up to
$345 per job for workers withheld at the married rate and up to $172
per job for those withheld at the single rate. In additions to
workers, taxpayers who are retired and have tax withheld from their
pensions will benefit from the changes.
The IRS estimates that taxpayers who file about 89 million
returns fall into the low and middle income category and will
benefit from the withholding table changes. At present about 72
million of those returns result in refunds.
The average income tax refund has grown substantially over the
years. For tax year 1990, the average refund was over $900 up from
$680 just ten years ago. Workers have too much tax withheld because
they do not claim all the withholding allowances to which they are
entitled. Eventually they receive the money in the form of a refund
check when they file their returns -- but they have lost the use of
the money during the year.
Since these low and middle income taxpayers will see their 1993
refunds moved into their 1992 paychecks, they will see smaller
refunds next year. But about 88 percent of those who get refunds now
will still get refunds. Other may find that they owe part of their
tax liability when they file their 1992 tax returns. Similarly those
who owe in 1992 may find they owe more in 1993. The IRS said that it
plans to review all 1991 returns filed and will notify those
taxpayers who may owe because of these changes, suggesting they
review their withholding for 1992.
The IRS will waive penalties for any underpayment of estimated
taxes in 1992 to the extent that the underpayment is caused by these
adjustments to the withholding tables.
High income wage earners will not see a change in their
withholding. There will be no change for workers withheld at the
single rate if their wages subject to withholding are above $53,200.
Withholding is computed on the amount of total wages less $2,300 for
each withholding allowance claimed. For those withheld at the
married rate, there is no change if wages subject to withholding
The changes in withholding will be automatic for those
taxpayers who will benefit from the change. However, some employees
may want to keep their withholding at the current rate. To do this,
they should give their employer a new Form W-4 claiming the same
number of withholding allowances. But they should ask for extra tax
to be withheld each payday. For those withheld at the married rate
this amount would be $345 divided by the number of pay periods in
the year. Those at the single rate should use $172.
The IRS said that the new tax withholding tables are ready now
and will be mailed to about five million employers by the middle of
February. The revised Circular E, "Employer's Tax Guide" contains
the new tables effective for wages paid after February 1992.
But some workers may see the boost in their pay checks sooner
because the IRS is encouraging employers to use the new tables as
soon as possible. Since many employers use commercial service
bureaus to compute income tax withholding for their employees, the
IRS is sending the new tables to the major commercial payroll
services for them to use immediately.
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