Understanding the W-4 Withholding: Take control of Your Taxes!

Paying taxes doesn’t have to be confusing or stressful. One of the biggest reasons taxpayers end up owing money at tax time is that not enough tax was withheld from their paychecks throughout the year. Here’s what you need to know to stay on track:

Why Not Enough Tax Was Withheld

If you owed money on your last tax return, it’s likely that your withholding didn’t cover your total tax liability. Several factors can affect withholding, including changes in income, multiple jobs in a household, or claiming too many allowances on your W-4. Even small differences in your withholding each pay period can add up to a significant balance due at tax time.

The W-4: Old vs. New

The W-4 form changed in 2020 to make withholding more accurate and simpler to understand.

Old System: Allowed allowances to reduce withholding. Many taxpayers found it confusing, and mistakes were common.

New System: Eliminates allowances and uses direct inputs like income, dependents, and deductions. This system is designed to better match your withholding to your actual tax liability. Updating your W-4 under the new system is key to avoiding surprises at tax time.

​Your Responsibility as a Taxpayer

You are in charge of making sure the correct amount of tax is withheld from your paycheck. This includes maintaining access to your employee portal, checking your pay stubs, and updating your W-4 whenever your personal or financial situation changes.

We understand it can feel frustrating when taxes don’t come out exactly right, but keeping your withholding up to date is ultimately in your control. Think of it as protecting yourself from a year-end balance due rather than relying on payroll software alone.

Reviewing Your Tax Return: Wages, AGI, and Tax Balance Due

When reviewing your 1040, the key lines to check are:

• Total Wages – the sum of income from your jobs.

• Adjusted Gross Income (AGI) – your total income after certain adjustments.

• Tax Balance Due – if this line shows a balance due, it means you didn’t have enough withheld.

If you owe money, the solution is to update your W-4 to increase withholding. Doing so helps you “break even” and avoid a large tax bill next year.

Sample Scenario: Adjusting Withholding for Married Couples

Let’s look at a common situation: a married couple filing jointly who owed $3,000 in federal taxes last year. To avoid a similar balance due next year, we can adjust withholding to better match your actual tax liability.

Step 1: Split the Additional Withholding
If both spouses are paid biweekly, you can divide the extra $3,000 evenly. This means each person would increase their federal withholding by about $115 per pay period. ON TOP OF whatever was withheld before.

Step 2: Update the W-4
For this scenario:

• Check the Married Filing Jointly (MFJ) box on line 2c.

• Claim no dependents (unless applicable).

• Enter $115 on line 4c as an additional amount to withhold each paycheck.

Step 3: Verify Current Withholding
Before submitting a new W-4, review what is already being withheld. Make sure the combined federal withholding, after the adjustment, matches the $115+ per paycheck. This ensures you are on track to break even with the IRS and avoid another balance due.

Step 4: Annual Review
Even after making these adjustments, it’s smart to review your W-4 once a year. A small increase in withholding can help ensure you continue to break even, especially if your income or deductions change.

​Scenario: Starting a New Job – Estimating Withholding for $35,000 Income

If you just got a new job and expect to earn $35,000 this year, filling out your W-4 correctly can help ensure you don’t owe taxes at the end of the year. Here’s a step-by-step approach:

Step 1: Filing Status

• Choose the filing status that matches your situation (Single or Married Filing Jointly). For most single taxpayers, select Single. If married and filing jointly, select MFJ.

Step 2: Claim Dependents

• If you have dependents, enter the appropriate amount on line 3. Otherwise, leave it blank.

Step 3: Other Adjustments

• If you want to withhold a little extra to be safe, you can enter an additional amount on line 4(c). For example, $10–$20 per paycheck can help prevent underpayment if your income or deductions change unexpectedly.

Step 4: Check Your Withholding

• Once your first paycheck is processed, review your pay stub to see how much federal tax is being withheld. Compare it with the IRS withholding estimator (available online) to make sure it’s on track.

Step 5: Update as Needed

• Even with a new job, it’s a good idea to check your W-4 once a year, or whenever your income, deductions, or household situation changes, to ensure you’re still on track to break even with the IRS.

Tip: It’s generally better to aim to break even or owe a small amount at tax time rather than receive a large refund. This keeps more money in your pocket throughout the year and reduces financial surprises.

Why It’s Better to Break Even—or Owe a Small Amount—Than to Get a Big Refund

Refundable Tax Credits Aside: Many taxpayers think a large refund from overwithholding is a “bonus,” but it actually means you gave the government an interest-free loan throughout the year. Breaking even—or owing a small amount—lets you keep more of your money during the year and reduces financial stress.

• Break even: You’ve paid roughly what you owe—no surprises at tax time.

• Small balance due: A tiny amount owed is manageable and shows your withholding is very accurate.

• Big refund: You’ve overpaid all year, essentially lending money to the IRS for free.

By monitoring your withholding carefully and making small, intentional adjustments, you can stay in control of your taxes while avoiding large surprises.

I Owe Taxes and Can’t Afford to Pay

It happens—sometimes you file your taxes and discover you owe more than you can pay right away. The good news is, you still have options.

Step 1: File Your Taxes on Time
Even if you can’t pay the full amount, it’s important to file your return by the due date. Filing on time avoids additional late-filing penalties.

Step 2: Set Up a Payment Plan with the IRS
Once your taxes are filed, you can work directly with the IRS to establish a payment plan. This allows you to break your balance due into manageable monthly payments. Payment plans can be short-term or long-term, depending on your situation, and the IRS provides online tools to make setup easier. https://www.irs.gov/payments/payment-plans-installment-agreements

Step 3: Avoid Accumulating Penalties
While interest and penalties will continue to accrue until the balance is paid in full, having a payment plan in place significantly reduces the risk of more serious collection actions.

Step 4: Adjust Your Withholding Going Forward
If you owed because not enough was withheld during the year, consider updating your W-4 to avoid a similar situation next year. Even a small increase in withholding can help you stay on track and prevent another balance due.

Remember: Owing taxes is common, and it’s not a permanent problem. By filing on time, setting up a payment plan, and adjusting your withholding, you can manage your balance responsibly and avoid future surprises.