When Should You Adjust Your Tax Withholding?


A woman sitting at her dining room table doing taxes.

A quick guide to when to make tax withholding adjustments and how to put them into effect.

After completing your income tax return, you might wonder if you should change how much tax you contribute each paycheck. Here’s a quick guide to evaluating your tax withholding and adjusting it if necessary.

How tax withholding is determined

When you were hired, your employer had you fill out a W-4. This tax form asks about things like whether you file as a single, married or head of household taxpayer. It also asks for information about multiple jobs and the number of dependents you have. The data collected on the W-4 is used to withhold the correct amount of federal income tax from your pay.

If you don’t know what’s currently on your W-4, contact your company’s human resources or payroll department.

When to adjust tax withholding

Three key events indicate it’s time to adjust your tax withholding:

  • You had to pay additional taxes when you filed your annual income tax return because you withheld too little.
  • You get a large refund because you withheld too much and you’d rather save money in your personal account over the course of the next year.
  • Your family composition changed; this includes marriage, welcoming a child or other dependent into your home, divorce or the death of spouse or dependent.

Other events that call for a withholding review are retirement, bankruptcy, buying a home, you or a spouse no longer working, you or a spouse getting an additional job and earning investment income. It’s wise to talk to your tax advisor in these situations to determine the correct withholding amount.

The IRS provides an online Tax Withholding Estimator that calculates how withholding affects your refund, take-home pay or tax due.

Is anyone exempt from withholding?

If your income last year was low enough that you didn’t owe taxes and the same holds true this year, you may indicate that you are exempt on line 4(c) of your W4.

How to adjust tax withholding

Ask your employer how they handle W-4 updates. They may supply the form, or you can download a W-4 from the IRS. Fill out the W-4 with the changes you’d like and turn it in to your employer.

Keep in mind that your Social Security number will be on the completed W-4 so keep it secure. Either hand deliver the form or email a password-protected digital file.


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