How to Check and Adjust Your Tax Withholding: Avoid Surprises and Maximize Your Refund

Get a Jump Start on Tax Season: Check Your Tax Withholding Now

Taxes are a part of life, and whether you dread them or not, staying ahead of the game can save you time, stress, and money. By reviewing your tax withholding early, you can avoid surprises next tax season and ensure you're on track to meet your obligations.

Why You Should Care About Tax Withholding

If you’ve earned income this year—whether through a job, a business, investments, or other sources—you may owe federal income taxes on it. Depending on where you live, you might also owe state income taxes. Staying on top of your withholding ensures you’re neither overpaying nor underpaying your taxes throughout the year.

What Is Tax Withholding?

Tax withholding refers to the process of deducting income taxes from your earnings before they reach your bank account. Employers withhold taxes on your behalf from each paycheck and send that amount to the federal government. Self-employed individuals or retirees may need to handle withholding differently, such as through quarterly estimated payments or direct deductions from pensions or Social Security benefits.

Common Withholding Issues

What Happens if Your Withholding Is Incorrect?

If your tax withholding isn’t accurate, you could:

• Owe more taxes when you file your return—a potentially stressful and costly surprise.

• Receive a large refund, which might feel like a bonus but is essentially an interest-free loan you gave to the government.

Common reasons for withholding errors include:

• Changes in family status: Marriage, divorce, birth, adoption, or the death of a dependent.

• Income fluctuations: Receiving a raise, losing a job, or withdrawing funds from retirement accounts.

• New tax deductions or credits: Buying a home, contributing to retirement accounts, or qualifying for education credits.

Steps to Check Your Tax Withholding

1. Review Last Year’s Tax Return

If your financial situation hasn’t changed much, your previous tax return is a good starting point. Look at the total taxes owed last year and compare it to your year-to-date withholding. Adjust for the remaining months of the year to see if you’re on track.

2. Use the IRS Tax Withholding Estimator

The IRS offers an online Tax Withholding Estimator to help you calculate your ideal withholding. Based on your input, the tool can provide guidance and generate a new W-4 form for you to submit to your employer.

3. Talk to Your Employer

If you’re unsure how much has been withheld so far, check with your employer’s HR or payroll department for a year-to-date summary.

4. Consult a Tax Professional

A tax advisor can provide personalized guidance, especially if your situation involves significant changes or complexities. Bring recent pay stubs and details about any new income or deductions to help them evaluate your withholding.

Year-End Strategies

As the year progresses, you’ll have a clearer picture of your total income. Use this information to make any necessary adjustments:

• File a New W-4: If you’re employed, submit an updated W-4 to your employer if your income or deductions have changed.

• Make Additional Payments: If you find you’ve underpaid, consider making a lump sum estimated tax payment before year-end to avoid penalties.

• Contribute to Tax-Advantaged Accounts: Boost your retirement savings with contributions to IRAs or 401(k)s, which may reduce your taxable income.

Tips for Business Owners

Business owners face unique challenges when it comes to tax withholding:

• Payroll vs. Distributions: S-corp owners have income from both payroll and distributions. Taxes are due on both streams, so accurate projections are essential.

• Profit and Loss Forecasts: Work with your accountant to estimate year-end profitability and ensure your withholding matches your anticipated liability.

Final Thoughts

Staying proactive about your tax withholding can prevent financial stress and surprises during tax season. Whether you’re employed, self-employed, or retired, tools like the IRS Tax Withholding Estimator and guidance from a tax professional can help ensure you’re withholding the right amount. Use the end of the year to fine-tune your strategy and set yourself up for a smoother tax season.

Additional Resources

• IRS Tax Withholding Estimator: Visit Here

• Updated Tax Brackets for 2025: IRS Tax Brackets

FAQs

1. What is the deadline for filing 2024 tax returns? The deadline is April 15, 2025. If the date falls on a weekend or holiday, the deadline will shift to the next business day.

2. Can I adjust my withholding multiple times a year? Yes, you can update your W-4 form as often as needed to reflect changes in your financial or family situation.

3. How do I avoid penalties for underpayment? Ensure that at least 90% of your annual tax liability is paid throughout the year, either through withholding or estimated payments.

4. Do I need to make estimated tax payments? If you’re self-employed or have significant non-wage income, you’ll likely need to make quarterly estimated tax payments to avoid penalties.

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Redesign Wealth Planning is a Registered Investment Adviser in the state of Alabama. Advisory services are only offered to clients or prospective clients where RWP and its representatives are properly registered or exempt from registration. "Likes" should not be considered a positive reflection of the investment advisory services offered by RWP.

Julie Jenkins, is an investment adviser representative of Redesign Wealth Planning. The firm is a registered investment adviser and only conducts business in jurisdictions where it is properly registered, or is excluded or exempted from registration requirements. Registration as an investment adviser is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability.

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