Have you ever received a big refund or had a big amount due when it came time to file your taxes?

Chances are, you could have changed your withholdings during the year and avoided a big surprise in April.

If you’re receiving a refund, having the proper amount withheld allows you to receive that refund in advance in the form of smaller withholdings from each paycheck.

If you have a large amount due, updating your withholdings can allow you to pay your tax bill more evenly throughout the year and avoid underpayment penalties.

How to Check Your Withholdings Against What You Will Actually Owe

So you want to update what you will have withheld to match what you will owe, but how are you supposed to know what you’ll owe until you file your tax return?

Luckily, the IRS has a free calculator that allows you to project what you’ll owe for the entire year.

You’ll need to have a recent pay stub and an estimate of any other income you’ll receive outside of your main job. You’ll also need to know if you will itemize deductions or take the standard deduction. Most people take the standard deduction, but you can check last year’s tax return to confirm (standard deduction amounts by year can be found here, and you should be able to find this amount on the first page of your Form 1040 if you took the standard deduction). 

The site will walk you through the information you need to enter step by step. Once you get to the “Results” page, the calculator will recommend how you can adjust your withholdings.

How to Adjust Your Withholdings

Once you know what changes you want to make, ask your employer about the best way to update your W-4.

This form is what determines the amount of taxes withheld each pay period. And most employers have a way to update and submit the form electronically.

When Should You Check Your Withholdings?

It’s best to check your withholdings near the beginning of the year to give yourself plenty of time to make adjustments.

If you have changes to your salary, bonuses, or other compensation, you should go through this process again to determine if any changes need to be made.

Overwhelmed By Taxes?

If you work with a tax preparer or financial planner, ask if they will do this for you! Many financial professionals who do tax planning will review withholdings and project what you will have due as part of their process.

If you’re not working with someone who can help you with tax planning, and you don’t have the time or energy to DIY this process – let us know, we’d be happy to talk to you about how we can help!

Joe Calvetti is a CPA and the founder of Still River Financial Planning, a comprehensive, fee-only financial planning firm that specializes in working with young families and professionals. Click here to learn more about how we work with clients.

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Disclaimer: The information provided above is for educational purposes only and should not be considered financial, legal, or tax advice. You should consult with a professional for advice specific to your situation.