If you’re wondering whether your paycheck is being taxed correctly, it’s time to take a closer look at your W-4 withholding. This small but powerful form determines how much federal income tax is withheld from your paycheck. And if it’s not filled out properly, it could mean a big surprise during tax season—either owing money or missing out on a larger refund.
In this article, we’ll explore five smart reasons to adjust your W-4 withholding and how to do it the right way.
1. You Got a New Job or a Raise
One of the most common reasons to revisit your W-4 withholding is a change in income. If you started a new job or received a raise, your tax liability may have increased. If your withholding doesn’t match your new income, you could end up underpaying and owing taxes next April.
Even small income changes can affect your tax bracket, especially if your raise pushes you into a higher one. To avoid penalties, update your W-4 to reflect your current salary and expected annual income.
2. You Got Married or Divorced
Marital status plays a big role in how your W-4 withholding should be calculated. If you recently got married, you might want to switch from “Single” to “Married Filing Jointly.” This usually results in a lower tax rate and changes the amount you should have withheld.
On the other hand, if you’re recently divorced, you may need to switch back to “Single” and remove any dependents your ex-spouse now claims. Failing to update your W-4 in this case can lead to under-withholding and a tax bill down the line.
3. You Had a Child or Gained a Dependent
Welcoming a new child or gaining a dependent can significantly reduce your taxable income through credits like the Child Tax Credit. But if your W-4 withholding hasn’t been updated, your employer might be withholding too much tax from your paychecks—meaning you’ll get a bigger refund, but you’ll have less money in your pocket throughout the year.
Adjusting your W-4 allows you to receive more money now by reducing your withholding, rather than waiting for tax season to get it all back.
4. You Owed Taxes Last Year or Got a Big Refund
If your last tax return left you writing a check to the IRS—or celebrating a huge refund—it’s a clear sign that your W-4 withholding needs fine-tuning.
- Owing money? You’re not withholding enough.
- Big refund? You’re withholding too much and giving the IRS an interest-free loan.
The goal is to get as close to zero as possible—neither owe nor get a huge refund. Adjust your W-4 based on last year’s tax return to strike that balance.
5. You Have Multiple Jobs or a Side Hustle
If you’re working more than one job or earning extra income through gig work, your tax situation can get complicated fast. Each employer withholds taxes as if that job is your only income, but together, your total income may place you in a higher bracket.
To avoid underpaying, use the IRS Tax Withholding Estimator to calculate how much extra should be withheld. You can then update your W-4 withholding or make estimated tax payments throughout the year.
How to Adjust Your W-4 Withholding
The IRS revised the W-4 form in recent years, making it more accurate and personalized—but also more detailed. Here’s how to adjust it:
- Get a Copy of the W-4 form from your employer or download it from the IRS website.
- Use the IRS Withholding Estimator online to calculate the proper withholding.
- Fill Out the Form accurately, including multiple jobs or dependents if needed.
- Submit the Form to your HR or payroll department—not the IRS.
You can update your W-4 any time during the year, and it usually takes one to two pay cycles for the changes to take effect.
Final Thoughts
Adjusting your W-4 withholding isn’t just about paperwork—it’s about financial control. By reviewing your W-4 at key life moments or financial changes, you ensure that you’re not caught off guard come tax season. Whether your goal is to owe less, avoid penalties, or simply take home more money throughout the year, taking a few minutes to review and adjust your withholding is a smart financial move.
If you’re unsure where to start, consult a tax professional who can walk you through the process and help tailor your W-4 to your unique situation.
Dr. Campbell
service@drcampbelltaxes.com
8565663267 x402