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Pay day better? Credit tax cut

Published Sep. 10, 2005

Notice a few extra dollars in your paycheck lately?

Most Americans will have to wait months for those income tax rebate checks, but millions already should be seeing one impact of this year's tax cut: Starting July 1, employers were supposed to adjust the tax withholding for workers' payroll to account for lower federal tax rates.

The key phrase being supposed to.

"Employers may not even bother" because the withholding change adds about four bucks a week to the average paycheck and because many workers won't be affected at all, said Bob McIntyre, who runs Citizens for Tax Justice, an advocacy group in Washington that's expert at calculating the effects of tax changes.

Theoretically, those extra few bucks a week per employee are supposed to help jump-start the economy, perhaps underwriting an extra meal at the drive-through or an extra gallon or two for the SUV.

But don't go running to Uncle Sam if you think your employer is depriving you of your chance to be an economic stimulus.

The Internal Revenue Service has instructed employers to begin using the new withholding tax tables "as soon as possible" for wages paid after June 30. But there is no specific timetable and no penalty for those slow to change.

IRS spokesman Anthony Burke said the agency has no way of knowing how many companies are complying at this point.

McIntyre, of the tax justice group, isn't surprised compliance is a low priority. By his calculation, as many as 95-million people won't be affected by the changes in withholding, which apply only to income previously taxed at rates of 28 percent and higher.

The rate changes and the rebate checks, which reflect a reduction of the minimum tax rate from 15 percent to 10 percent, are the biggest elements in this year's installment of the tax cut championed by President Bush and approved by Congress.

If you are affected but your employer doesn't adjust your withholding, you can probably expect to get back an extra $100 when you file your taxes next year.

At TECO Energy in Tampa, spokeswoman Laura Plumb said the utility changed employee withholding July 1 but many people were not affected. "It just depends on the tax bracket," she said.

If you're like David Dunbar, chief executive of Peoples Bank in Palm Harbor, the payroll company you use already has made the change and you haven't noticed.

Dunbar, whose bank pays employees on the first and 15th of the month, initially said he did not think the change had been made. A quick call to his human resources department clarified that the higher net paychecks had begun with Monday's payday.

"I just assumed it was the same number," Dunbar said.

Like many organizations, Peoples Bank was clued in to the change because its payroll is handled by a large third-party provider, ADP. Most payroll service companies have implemented the change.

But the adjustment could be below the radar screen of many small businesses that do their own payroll.

And then there are those employers who knew about the withholding switch but were thwarted by the complexities of the IRS.

Dr. James Noyes, a psychologist in Pinellas Park, was amazed when he started investigating the new rates for his employees last week and calculated they were going to have more money taken out.

"I thought, "Boy am I going to hear it,'

" when the checks go out, Noyes said.

It turns out he was using the wrong one of two tax tables in the back of IRS' new Form 15-T _ a table that takes out Social Security withholding as well as income taxes. Noyes said the extra table confused him because it was not previously part of the withholding booklet.

Alerted to his error, Noyes was relieved that the IRS was merely being confusing. "I really thought I was going crazy," he said. "You don't expect something like that coming from the government to be so off."

_ Times staff writer Jeff Harrington can be reached at or (813) 226-3407.

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