THE COLOR OF MONEY
Check your pay stub for tax cut changes

By Michelle Singletary

It's summertime, and I'm sure the last thing you probably want to think about is taxes.

Well, think again. Even though most of us are trained to begin the taxing job of tackling our tax returns after the first of the year, constant changes to the tax code are almost making it a year-round job.

So, put down your beach book just for a little while and take the time to check a few things.

For instance, make sure your paycheck is a little fatter now, advises Arizona-based Symmetry Software, which runs a Web site with a great calculator that can help you check how the new tax law will affect your bottom line.

You should have more money as a result of lower tax rates, thanks to the Jobs and Growth Tax Relief Reconciliation Act of 2003.

Employers should have started using the new rate tables no later than July 1. The old federal tax rates of 27 percent, 30 percent, 35 percent and 38.6 percent have been reduced to 25 percent, 28 percent, 33 percent and 35 percent respectively. This is a drop of two percentage points for the first three rates. The fourth, called the top bracket, went down 3.6 points.

Since employers had just a few months to apply the new rates, Sam Kerch, senior tax research analyst for Symmetry Software, suggests you double-check your pay stub to make sure you're getting the right amount of money.

"It's not likely there is a mistake, but it could be because everything had to be done so quickly," Kerch said.

Besides, this double-check is free. Just go to Symmetry's Web site at www.paycheckcity.com and click on the link that says, "New 2003 tax cut calculator." You will need to have your paycheck stub and know how many withholding allowances you elected on your federal and state W-4 forms.

So, for example, let's say you live in California and have a gross income of $60,000 a year, you're paid biweekly, married and have five federal and state exemptions.

Before the tax cut, your take-home pay (not including various other withholdings you might have elected) would have been $1,862.63, according to Symmetry's calculator. Your net pay should have increased to $1,877.43 after the tax cut.

Just so you know, the tax cut is retroactive to the beginning of this year, so many taxpayers will have had too much withheld from their pay for the first half of 2003.

As a result, you may need to change the number of withholding allowances you take, Kerch said. That means filling out a new W-4 form, which you can also do on Symmetry's Web site or at www.irs.gov.

As Kerch points out, if too much was withheld, you may end up with a large tax refund.

"A big fat refund check is a big fat interest-free loan to the government," Kerch said.

You can adjust your withholding at any time to increase your take-home pay by claiming allowances based on expected tax deductions and credits. Just follow the instructions on the W-4. It's really not hard.

In fact, you should update your W-4 form anytime there is a change in your family or financial situation, Kerch said.

On the other hand, it's possible that not enough money will be withheld from your pay as a result of the tax cut, because the higher your income, the more of a tax break you got. If that is the case, you may want to reduce your withholding allowances to make sure you don't have to pay additional taxes come April 15.

"A tiny refund or a tiny tax payment should be your objective," according to Kerch.