Could tax reform mean you could see a bigger paycheck in January?
Carl Carlson from Carlson & Company Financial Services says yes in January you should see a bigger paycheck!
Tax rates have been lowered for 2018 so the withholding on your paycheck should decrease, which means more money in your pocket.
Carlson explains how it works - "In its simplest form take a couple both making $62,000, that’s $124,000 per year less $24,000 in standard deductions = $100,000 taxable income. On roughly $80,000 (first $19,051 hasn’t changed, it’s still 10%) you will be saving 3% or $2,400. And do you know what, that is better than a 3% raise."
If your spouse and you got a 3% raise and you would make over $100,000 combined you would think you should be getting over $3,000 not $2,400 but Carlson said when you get what would actually be a $3,720 raise you also have to pay 25% in federal taxes, 5.75% in state taxes, and 7.65% in FICA taxes.
That’s 38.4% in taxes. So out of $3,720 you will see, after taxes, $2,291 per year added to your paycheck, actually less than the $2,400 in this example.
Now, you may be wondering what to do with this new found money.
Carlson said it is best to save it or save half of it and spend the other half.