Inside Iowa State: Iowa State University

June 4, 2003

June paychecks will reflect federal tax cut

by Anne Krapfl
Most Iowa State employees should see a few more dollars in their paychecks this month. Payroll manager Doug Anderson confirmed that June 30 paychecks will reflect new federal income tax rates; he said this week he's hopeful the June 13 (for those paid semi-monthly) payroll will, as well.

The new withholding rates reflect changes made by the federal "Jobs and Growth Tax Relief Reconciliation Act," signed into law on May 28. The new law increases the amount of taxable income allowed in the 10 and 15 percent tax rates. It also lowers the tax rates above 15 percent to 25, 28, 33 and 35 percent --- a decrease of 2 percentage points for each rate except the top rate, which is down 3.6 percent.

The amount of tax withheld from every employee's paycheck is based on two considerations: gross taxable income and the number of allowances he or she claims on the W-4 form. The actual tax reduction will vary according to combinations of the two.

"Some people don't earn enough to pay income taxes. Others claim so many allowances they have no withholding," Anderson noted. "But, if you currently have taxes withheld, you will see them go down."

For illustration purposes, Anderson calculated the differences in federal tax withholdings, under the old and new rates, on two "sample" employees:

Sample A: Single claiming 1 allowance on the W-4
(monthly) taxable gross income		decrease in federal income tax
Less than $1,000		0 to $2
$1,001 to $3,000		$2 to $16
$3,001 to $5,000		$16 to $56
$5,001 to $7,000		$56 to $100
$7,001 to $9,000		$100 to $143
$9,001 to $11,000		$143 to $183

Sample B: Married claiming 2 allowances on the W-4
(monthly) taxable gross income		decrease in federal income tax
Less than $2,000		0 to $13
$2,001 to $4,000		$13 to $30
$4,001 to $6,000		$30 to $156
$6,001 to $8,000		$156 to $196
$8,001 to $10,000		$196 to $242
$10,001 to $12,000		$242 to $292