Adjust Your Withholding Today

Did you owe an unexpectedly large amount of taxes this year? Or maybe you received a much bigger refund than expected? Let’s take a look at how you can avoid these surprises next year.

What are withholdings?

Withholding refers to the portion of your paycheck that’s set aside for federal income taxes.

With proper adjustments, you can:

  • Increase your take-home pay
  • Prevent owing money next year
  • Avoid potential penalties

A Real-World Example

Let’s say Joe didn’t have any withholdings taken out of his paycheck throughout the year. When April comes, Joe files his taxes—and is shocked to discover he owes the IRS $5,000.

Meanwhile, Jane, Joe’s co-worker, had $400 withheld from her paycheck every month. When she filed her return, she only owed $200 because she’d been pre-paying her taxes through her withholding.

How Did Jane Get It Right?

Jane used the IRS Tax Withholding Estimator, which takes into account her filing status, income, and last year’s tax return to calculate how much she should have withheld each month.

The IRS Tax Withholding Estimator

The IRS Tax Withholding Estimator is an online tool that helps you figure out the optimal amount of federal income tax that should be withheld from your paycheck.

What Documents Do You Need?

To use the IRS Tax Withholding Estimator most effectively, gather the following:

  • All income statements (including your spouse’s if filing jointly)
  • Data from other earnings (e.g., side jobs, rental income)
  • Your most recent tax return

For more complex tax situations, refer to IRS Publication 505 for additional guidance.

Next Steps

Once you’ve used the IRS Tax Withholding Estimator, the next step is to fill out a new Form W-4 and submit it to your employer. This will adjust the amount of withholding from your future paychecks.

Additional Resources

Frequently asked questions regarding the IRS Tax Withholding Estimator can be found on the IRS website.

Sources:

IRS encourages taxpayers to check withholding now for next year | Internal Revenue Service
https://www.irs.gov/forms-pubs/about-publication-505
https://www.irs.gov/forms-pubs/about-form-w-4