Checking Your Federal Tax Withholding – Why, When, and How

If you are an employee, you know that various taxes are withheld from your paychecks. While you generally can’t change the amount of social security and Medicare taxes withheld, you can change the withholding amounts of federal and state income tax. In fact, the IRS encourages taxpayers to review their income tax withholding at least once per year to make sure they aren’t having too much or too little tax withheld.

Why should I check my federal withholding?

If you have too much tax withheld, the government will not penalize you; they are happy to hold your money as an interest-free  loan. We make no judgement if you use your tax refund as a savings account, but you do deprive yourself of the use of additional income during the year when you over withhold.

On the other hand, if you have too little tax withheld, the IRS can charge penalties and will also assess interest on under- or unpaid tax amounts. Having a large, unexpected tax bill when you file your tax return can be devastating and can be prevented with some care.

When to update withholding

You should check your withholding each year, but should update it anytime you:

• have a major life change like getting married or divorced,
• have a change in household income,
• add a new baby to your family,
• work only part of the year, or retire, or
• when there are significant changes to the tax law, as there were in 2025 with the One Big Beautiful Bill Act.

How do I update my withholding?

Use IRS Form W-4, Employee’s Withholding Certificate,  to let your employer know how much federal tax to withhold from your paychecks. You likely filled out Form W-4 when you started a new job, but you can change your W-4 any time.

Form W-4 is a single page form that can be simple to complete but can also be surprisingly complex. The more closely you want your withholding amounts to match your actual tax liability for the year, the more information you will provide on the form. More information means more complexity.

You can use Form W-4 to have your employer withhold extra tax from your wages to cover income that won’t have withholding, such as interest or dividend income. Use step 4 of the W-4 to make such an adjustment to your withholding amount.

Detailed information about how to complete Form W-4 is beyond the scope of this article but if you need help with one or have questions about how to fill it out, give one of our tax professionals a call.

To calculate the withholding most accurately or to check if your tax withholding is on track for the year, we recommend using the IRS Tax Withholding Estimator found here: Tax Withholding Estimator - About you | Internal Revenue Service. It is a free, relatively easy-to-use tool that helps workers and retirees estimate the amount of federal income tax they should have withhold. It takes about 25 minutes to complete, and you will need the following information to use it:

• Your most recent paystubs for your job
• Your spouse’s most recent paystubs for their job
• Information for other income sources
• Your most recent tax return
• Payment records for self-employment, gig work, or social security
• Records for expenses if you plan to itemize deductions

If you decide to change your withholdings after you use the estimator, the website can generate a prefilled Form W-4 to provide to your employer.

What if I Can’t Use the Tax Withholding Estimator?

Not everyone can use the IRS Tax Withholding Estimator. It should not be used if you have a pension but no job, you own a business, are a US nonresident, or if your tax situation is complex.

If you find yourself in one of these categories, we recommend asking your tax professional about tax projection services. A tax projection is a withholding check on steroids! It is a calculation that estimates your tax liability for the year by evaluating your quarterly and year-to-date income, expected deductions, and estimated tax payments. It is meant to help you avoid surprises, fine-tune withholdings, and optimize your financial decisions during the tax year.

When you do your “withholding check-up” this year, whether simple or complicated, let us know how we can help. We always enjoy hearing from you and are happy to be of assistance.