Learn how to calculate your federal tax withholding and use the IRS's free tax withholding estimator to avoid unexpected tax refunds or bills.
Adjusting Your Paycheck Withholdings for Unexpected Tax Refunds or BillsIf your federal tax refund or tax bill is significantly higher or lower than anticipated, it might be time to review your paycheck withholding. Determining the appropriate amount to withhold from each paycheck can feel like a daunting task, but there are tools and methods to help. A simple calculation can provide a quick assessment, or you can leverage the IRS 's free tax withholding estimator.
Generally, a refund occurs when you overpay taxes throughout the year, while a tax bill arises when you don't pay enough. Employees are responsible for informing their employers about the desired amount of federal tax to withhold from each paycheck using Form W-4.One certified financial planner and enrolled agent, Tommy Lucas, suggests a straightforward approach. After filing your 2024 return, locate your 'total tax' on line 24 of the second page. Next, determine your current withholding amount per paycheck and the remaining pay periods for 2025. For instance, if your 'total tax' for 2024 was $10,000 and there are 23 pay periods remaining in 2025, you'd need to withhold approximately $435 from each paycheck. To increase your withholding, revise Form W-4, adding 'extra withholding' in the 'other adjustments' section of step 4. Remember to readjust your W-4 at the start of each new tax year and whenever your tax situation changes, such as receiving a bonus, taking a second job, getting married, divorced, or having a child. The IRS tax withholding estimator can be a helpful tool, but it's best suited for less complex tax situations. You'll need pay stubs from all jobs (including your spouse's) and recent tax returns to utilize this tool effectively.
Tax Withholding IRS Refund Tax Bill Form W-4
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