Shaw Bill Confusion: Bigger paychecks now...or later?

The largest personal income tax cut in state history has kicked in, but there's a catch: you won't get right away if you don't ask for it.

Act 396, also known as the Shaw Bill, essentially repeals the 2003 tax law, known as the Stelly Plan, by cutting the percentage of income tax you have to pay.

At stake: a big income tax break for thousands of Louisiana taxpayers. Individual filers who make at least $12,500 a year could see their annual tax bill drop $500, and joint filers could see a $1,000 cut.

The catch: the tax break went into effect January first, but the tax tables employers use to calculate how much money is taken out of your paycheck won't be officially ordered by the state until July 1st at the earliest.

It's a shame it's occurred this way," says Louisiana District 36 Senator Robert Adley, "shouldn't have happened this way at all, should of been pretty simple and just move forward. But that's what happens sometimes in Baton Rouge."

Senator Adley championed Act 326 of 2008, along with Senator Robert Shaw and others, which was signed by Governor Jindal back in June - but only after a compromise. "The governor wanted it in 2009, so we set it up for 2009," says Sen. Adley. "I don't think anyone anticipated that someone would be playing this game of July one or January one."

Lisa Barker of Accounting and Tax Management in Shreveport does payroll for dozen of local businesses, and clients want to know "how they can compensate their employees until the tax tables do become part of the computerized payroll system."

For now, Adley suggests you take the proposed tables available right there on the Louisiana Department of Revenue's web site to your employer, and ask them to change your withholding manually.

Adley says it will be up to them: "The law says you're not supposed to, but by question to the Department of Revenue: What's the penalty? Well, there IS no penalty. Because the tax is what the tax is. The tax is going to be the same the entire year."

For taxpayers in the affected income brackets, the lower rates under Act 396, also known as the Shaw Bill, will apply to their 2009 Individual Louisiana Income Tax Returns, to be filed no later than May 15, 2010.

Individuals who wish to estimate how the Shaw Bill will affect their paycheck withholding during the 2009 tax year can do so with the 2009 State Income Tax Estimator, available on the website of the Louisiana Department of Revenue. Taxpayers who choose to temporarily reduce their income tax withholding can complete the Temporary Employee Exemption Certificate L-4 form.

For more information, visit the 2009 Income Tax Estimator Info page.