Do You Need to Adjust Your Tax Withholding?


Tax papers with a pen on top to show the need to adjust your tax withholding.

Once you've filed last year's tax return and can see where your finances are headed this year, it may be a good time to adjust your income tax withholding to help make sure you're having the right amount withheld from your paycheck.

Tax withholding is a balancing act. If you have too much tax withheld, you will receive a refund when you file your income tax return. If you prefer to receive more in your paycheck instead, you will need to reduce your withholding. However, if you have too little tax withheld, you will owe tax when you file your tax return and might owe a penalty.

Two tools — IRS Form W-4 and the Tax Withholding Estimator on irs.gov — can be used to help figure out the right amount of federal income tax to have withheld from your paycheck. Using these can be beneficial when tax laws change, your filing status changes, you start a new job, or you have other major life changes. You might make a special effort to review your withholding if any of the following situations apply:

  • Filing as a two-income family
  • Holding more than one job at the same time
  • Working for only part of the year
  • Claiming credits, such as the child tax credit
  • Itemizing deductions
  • Having a high income and a complex return

How To Adjust Your Withholding

Your employer will withhold tax from your paycheck based on the information you provide on Form W-4 and the IRS withholding tables. In some cases, you will need to give your employer a new Form W-4 within 10 days of a change in personal circumstances (for example, if the number of allowances you are allowed to claim is reduced or your filing status changes from married to single). In other cases, you can submit a new Form W-4 whenever you wish. See IRS Publication 505 for more information.

If you have a large amount of nonwage income, such as interest, dividends, or capital gains, you might want to increase the tax withheld or claim fewer allowances. In this situation, also consider making estimated tax payments using IRS Form 1040-ES.

You can claim exemption from federal tax withholding on Form W-4 if both of these situations apply:

  1. In the prior tax year, you were entitled to a refund of all federal income tax withheld because you had no tax liability, and
  2. For the current year, you expect a refund of all federal income tax withheld because you anticipate having no tax liability.‚Äč
 

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Non-deposit investment products and services are offered through CUSO Financial Services, LP ("CFS") a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. The Credit Union has contracted with CFS for investment services. Atria Wealth Solutions, Inc. ("Atria") is a modern wealth management solutions holding company. Atria is not a registered broker-dealer and/or Registered Investment Advisor and does not provide investment advice. Investment advice is only provided through Atria's subsidiaries. CUSO Financial Services, LP is a subsidiary of Atria.

Non-deposit investment products and services are offered through CUSO Financial Services, LP ("CFS") a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. The Credit Union has contracted with CFS for investment services. Atria Wealth Solutions, Inc. ("Atria") is a modern wealth management solutions holding company. Atria is not a registered broker-dealer and/or Registered Investment Advisor and does not provide investment advice. Investment advice is only provided through Atria's subsidiaries. CUSO Financial Services, LP is a subsidiary of Atria.

Copyright 2006- Broadridge Investor Communication Solutions, Inc. All rights reserved. 
Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances. 

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