The U.S. has a pay-as-you-go tax system. This means that instead of paying your total tax bill in one lump sum, you will make payments toward your bill throughout the year.
When you start a new job, you fill out a Form W-4 that tells your employer how much of your income should go to your tax liability. As a result, a certain amount of federal income tax is withheld from your paycheck each pay period.
If you have too much income withheld for taxes, you will get a refund when you file your next return. However, if you have too little withheld, you will owe the IRS at tax time and might even have to pay a penalty. Fortunately, updating your W-4 can help you avoid a surprise when you file your next return is easy.
When should I check my W-4?
Anytime your personal or financial situation changes, you’ll want to make sure you are having enough income tax withheld from your paycheck. Here are five reasons you would need to give your W-4 an update:
- Your total household income increased: A change in total income might put you in a different tax bracket, and you could end up owing more in taxes than you expected. If your household is earning more income, consider updating your W-4.
- You started a side-gig: If you work two jobs, you can record both earnings on a single form: See step 2 of Form W-4. Income tax withholdings are calculated based on your total earnings, so if you don’t receive a Form W-2 from your side gig (say you get Form 1099 instead), you should still account for your additional income on your W-4.
- You or your spouse began a new job: When your partner starts a new job and is completing a new W-4, this is a good time to revisit your W-4. Married taxpayers filing a joint return will indicate this by checking the box in Step 1(c) of Form W-4. This box must be checked on both spouses’ W-4 forms.
- Your family situation changed: The amount you have withheld for tax may need to change when you have children, get married, or get divorced. If you didn’t make an adjustment after a major life event, do it as soon as possible. Waiting means there are fewer pay periods to withhold the necessary federal tax.
- The tax laws changed: The tax laws in America are subject to change, and some tax laws will even change every year. If there is a major tax law update (the last time this happened was in 2018 with the Tax Cuts and Jobs Act), it could impact how much you owe for taxes and/or how much you get back in your refund. If your tax liability goes up due to the tax law changes, you could avoid a surprise tax bill by adjusting your withholding percentage ahead of the filing season.
Learn more: Why Do We Get Money Back for Taxes?
How can I adjust my withholding percentage?
Adjusting your withholding percentage is simple:
- Estimate how much income tax should be withheld from your paycheck each pay period using the IRS Withholding Calculator.
- Complete Form W-4. The W-4 can be adjusted anytime during the year. You can simply ask your employer for a new form or download one here. Use the following steps to fill out the form:
- Enter your personal information
- Enter multiple jobs or indicate that your spouse also works
- Claim dependents
- Indicate other adjustments (optional)
- Sign the form
- If you haven’t been withholding enough money for income taxes, you can make an estimated payment. To do so electronically, use IRS Direct Pay or the Treasury Department’s Electronic Federal Tax Payment System (EFTPS).
