Most Americans will start seeing a bigger paycheck as soon as today. The Treasury Department estimates ninety percent of workers will see an increase in take-home pay.
On average, people will see their paychecks go up about 1 to 2 percent. According to the Tax Policy Center, a middle-income household should see a tax cut of about $930-dollars this year.
Not everyone will see those changes in their paychecks starting today though.
“Some companies just haven't implemented the withholding changes yet,” Certified Financial Planner Rick Bloom explains. “So this is a complicated tax law; companies are responsible, so companies are taking a little extra time to make sure they dot the i’s and cross the tees.”
Bloom says if your paycheck goes up, like many will, resist the urge to spend it. Experts believe if everyone spends the extra money, it’ll lead to inflation and higher interest rates, making it more expensive to borrow money.
“We have a big problem in this country, people do not save for their retirement,” Bloom says. “People should look at this not as a windfall, but as an opportunity to put themselves in better financial shape.”
That starts he says with using the money to pay off credit card debt. And then, or if you don’t have debt…
“You should look at this as an opportunity to invest more money, increase their 401k contributions, if they’re fully maxed out, do a Roth IRA.”
Look at your W-4
Keep in mind your paychecks moving forward may actually be too big, or too small, depending on how you’ve filled out your w-4 at work. It may very well require tweaking this year because of the deduction changes in the new tax law.
“Some people have very few deductions; this tax law is going to be a win-win for them,” Bloom explains. “They’re going to find they can have their withholding reduced. On the other hand, people who have a lot of deductions who may lose some of those deductions, they may find that they better increase their withholdings.”
Help to figure it out
The IRS says it will be publishing a new online calculator by the end of this month that will help all of us decide how we should adjust our allowances, or withholdings, based on our own personal and financial situation.