Under the recently enacted Economic Growth and Tax Relief Reconciliation Act of 2001, personal income tax rates will be reduced effective July 1.
The IRS has issued Publication 15-T, New Withholding Tables for 2001 (for wages paid after June 30, 2001), and reminds employers that they are to begin using the new tables for withholding on wages paid after June 30, 2001.
The new withholding tables are a supplement to Publications 15, 15-A, and 51, and should be used instead of the tables in those publications. Of specific note are changes to supplemental wages and backup withholding.
The new withholding publication contains a "Notice to Employees," which employers are to make available to workers so that workers are aware of how the new law affects their withholding.
Effective for wages paid after August 6, 2001 (or as soon as possible thereafter), the supplemental wage flat withholding rate is decreased to 27.5%.
Effective for payments after August 6, 2001 (or as soon as possible thereafter), the backup withholding rate is decreased to 30.5%.
The withholding tables do not reflect the new 10% tax bracket, which was made effective retroactive to Jan. 1, 2001. (The new law lowered from 15 to 10 percent the tax rate for the first $12,000 of taxable income on a joint return, $6,000 for singles, and $10,000 for heads of households.) Congress decided to provide the benefit of that rate cut by sending rebate checks to taxpayers this summer and fall. Sending the rebate was deemed a quicker way to deliver money into the pockets of Americans and stimulate the economy than through an adjustment to the withholding tables. For details, see Tax Rebate.