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If you have a tax bill or bigger than expected refund this season, it may be time to update your paycheck withholding, which can be tricky, experts say.
Typically, there’s a refund when you overpay taxes throughout the year, and a tax bill when you don’t pay enough. It’s up to the employee to tell employers how much federal tax to withhold from each paycheck via Form W-4.
The form “seems like a calculus problem,” said Tommy Lucas, a certified financial planner and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida. But there’s a “quick and dirty” way to figure it out, he said.
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‘Back-of-the-napkin’ math for your withholding
After filing your 2024 return, you can see your “total tax” on line 24 on the second page of your filing, Form 1040, Lucas said. If your earnings and tax situation are the same for 2025, your tax liability should be similar.
Next, you’ll need to know how much you’re withholding from each paycheck and how many pay periods remain for 2025 to see if you’re on track, he explained.
For example, let’s say your “total tax” was $10,000 for 2024. If there are 23 pay periods left in 2025, you’ll need to withhold roughly $435 from each paycheck, Lucas said.
To withhold more, you can resubmit Form W-4 with an “extra withholding” added in the “other adjustments” section of step 4, he said.
“That’s the simple, back-of-the-napkin method,” Lucas said.
However, you’ll need to readjust your W-4 at the beginning of the next tax year. It should also be updated as your tax situation changes — like a bonus, second job, marriage, divorce, having a child and more.
Use the IRS ‘tax withholding estimator’
If your tax situation has changed or you want a more detailed update, you can use a free IRS tool known as the “tax withholding estimator,” Lucas said.
“It’s intuitive and it actually does a really good job,” he said.
You’ll also need pay stubs from all jobs (including your spouse) and most recent tax returns. But it won’t be a good fit “if your tax situation is complex,” according to the IRS.
With rapid changes in income, investment earnings or retirement plan distributions, you may need quarterly estimated tax payments to avoid IRS penalties, said Sheneya Wilson, a certified public accountant and founder of Fola Financial in New York.