Is it time to update your tax withholdings?

Any time your personal or financial situation changes, it could impact how much money you owe for taxes. In turn, you might need to have more (or less) money withheld from your wages.

What is withholding tax?

The tax system in the U.S. is designed so that you end up paying your taxes a little at a time all year long—rather than paying your total tax bill all at once. If you are traditionally employed, your employer is the one who makes sure a portion of your earnings are set apart – or withheld – from each paycheck to cover your portion of social security and Medicare tax.

When you are hired as a new employee, you are asked to fill out an IRS Form W-4. The information on the W-4 tells your employer how much they should withhold for tax on your behalf each pay period. ​At the end of the year, you’ll receive a Form W-2, Wage and Tax Statement, showing the total wages you received, plus any amounts that were withheld.

How to check your withholdings

Many employers use payroll software to manage things like employee benefits and payroll taxes. If yours does, you may be able to check and update your tax withholdings by logging in to your employer’s payroll software of choice.​ To be sure you’re having the correct amount of tax withheld, use the IRS Withholding Calculator. If changes are needed, simply complete and submit a new Form W-4 to your employer anytime.​

How to calculate withholding tax

One easy way to calculate how much you should have withheld from your paycheck is to use the IRS Withholding Calculator.

Have these ready before you begin:

  • Your most recent tax return​
  • Paystubs for any and all jobs you have
  • Your spouse’s paystub(s) if you are married ​
  • Other income info (side jobs, self-employment, investments, etc.)​

How much should you withhold for taxes?

The amount an employer should withhold for tax depends on a few different factors, including:​

  • How much the employee earns​
  • The employee’s information from Form W–4​

Your employer should withhold 7.65% of your adjusted gross income for FICA taxes. They should also withhold an amount for federal and state income tax. Reminder: your federal income tax liability is based on your tax bracket.

For help determining how much you should have withheld from your paycheck, use the IRS Withholding Calculator.

What happens when you have too little withheld for taxes?

If you don’t have enough income withheld for taxes, you will owe the IRS at tax time – and you might even have to pay a penalty for underpaying during the year. ​

The good news is, you can catch up on your taxes and avoid that penalty by making an estimated tax payment. Learn more about estimated tax payments​.

What happens when you have too much withheld for taxes?

If you have too much income withheld for taxes, you will get a refund when you file your next return.

How to adjust your withholdings

  • Estimate how much income tax should be withheld from your paycheck each pay period using the IRS Withholding Calculator.​
  • Complete a new 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.​
  • Submit the updated form to your employer, so they can make the necessary adjustments to your pay going forward.​

Can you change tax withholding online?

Ask your employer. They may have an automated system for submitting tax forms. If not, you’ll need to complete a new Form W-4, Employee’s Withholding Allowance Certificate and give it to your employer to submit to the IRS.

You can download the form for free anytime on the IRS website, but it can't be submitted on the IRS website.

Is it better to withhold tax or make quarterly tax payments?​

There are two ways you can choose to pay tax: you could have it withheld from your earnings, or you could make estimated tax payments during the year. Either way, remember that if you don’t pay enough tax through withholding and/or estimated tax payments, you may be charged a penalty.​

Who pays withholding tax?

Your employer generally must withhold Social Security and Medicare taxes (FICA) from your wages, as well as federal and state income tax. Your employer pays the employer's share of these taxes, and you must pay the employee’s share.

How many allowances should you claim on your W-4?

​Under the current tax code, you can no longer claim allowances on Form W-4. Allowances used to be tied to personal exemptions, but these were eliminated by the Tax Cuts and Jobs Act.

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