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New Tax Withholding Tables
Workers will be getting more money in their paychecks thanks to the Jobs and Growth Tax Relief Reconciliation Act of 2003. New withholding tables incorporate the lower tax rates for employers to use when figuring the federal income tax to withhold from their employees wages.
Employers should use these new tables as soon as they can work them into their payroll systems, but not later than July 1, 2003. By the third week of June, employers can expect to find in the mail a printed copy of Publication 15-T containing all the tables.
In making tax rate changes retroactive to the beginning of 2003, Congress recognized that tax withholding has already occurred at the higher rates required under the prior law. The new law's Conference Report states that "taxpayers who have been overwithheld as a consequence of this (should) obtain a refund of this overwithholding through the normal process of filing an income tax return, and not through the payor." Therefore, employers and others that withhold taxes should not attempt to "correct" amounts withheld at the rates required under the law before they could implement the new withholding rates.
Employees may adjust their withholding to bring the tax paid closer to the tax owed, but they may not claim more allowances than they are entitled to, based on their expected exemptions, deductions and credits. To avoid an estimated tax penalty for not paying enough during the year, they may want to see how much their withholding drops before making further adjustments.
The new law extended the 10 percent rate to cover the first $7,000 of taxable income for single persons, $14,000 for married couples. It also lowered the tax rates above 15 percent to 25, 28, 33 and 35 percent. This is a drop of two percentage points for each rate except the top one, which went down 3.6 points.
The new law also raised the standard deduction for married couples to $9,500 and extended their 15 percent tax rate to $56,800 of taxable income. Each figure is double the number for single taxpayers. The changes reduce the marriage penalty the difference between the tax couples pay and the amount they would have paid as two single persons.
For other information about the new tax law, see:
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