IRS News Release  
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 their employers.

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 exceed $90,200.

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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