It’s possible to plan your taxes so that you don’t owe anything to the Internal Revenue Service (IRS) when you file your federal tax return. You can do this by using your W-4 form to adjust your withholding.
While most employees know that you submit a W-4 when you start a new job, many don’t realize you can submit a revised W-4 anytime. Here’s how you can manage your withholding to get your tax payments just right.
Key Takeaways
- Form W-4 determines how much tax is withheld from your paycheck, and your withholding determines whether you have a bill, refund, or no action when you file your tax return.
- You can submit a new W-4 to your employer at any time.
- You can estimate how much tax you owe during the year using an online tax calculator and adjust your withholding accordingly.
- If you provide incorrect information on a W-4 or underpay your taxes, you may owe penalties in addition to your tax bill.
Understand Tax Withholding
Form W-4 is the form you fill out for your employer when you start a new job. This determines what percentage of each paycheck will be withheld to pay your taxes. How much is withheld throughout the year determines whether you will owe money when you file your tax return. If not enough is withheld, you will have a tax bill to pay when you file your tax return in April. If too much is withheld, you will be entitled to a tax refund.
While a tax refund may feel better than a tax bill, it’s not an ideal situation either. It’s not always a huge win to get a tax refund because that means you’ve lent your money to the government, when you could use that money throughout the year and control it yourself.
The ideal situation when you file your taxes is that your withholding and tax liability match up perfectly, with no tax bill or refund in sight. To achieve this balance, you need to start by finding how much income tax you will owe for the year.
How to Estimate Your Annual Tax Liability
If you have a salary and a regular paycheck, you can calculate your total tax liability based on your annual salary. However, more than half of workers in the U.S. are paid hourly rather than by receiving a salary.
If you are paid hourly, receive commissions and tips, or otherwise don’t have a consistent income, it becomes harder to calculate your annual tax liability. You’ll need to estimate your annual income based on your previous earnings. Once you have a reasonable income estimate, you can use one of several methods to estimate how much tax you’ll need to pay.
You should adjust your withholding anytime you have a major life change, such as:
- Marriage
- Divorce
- Birth of a child
- Adoption of a child
- Dependent moving out
- Death in your household
- Developing a disability
- Home purchase
- Filing for bankruptcy
Online Calculator
Use a free online paycheck and tax calculator that can help you estimate your yearly tax liability. Many can be found through an online search. For most of them, you’ll need to put in your:
- Total pay
- How frequently you are paid (weekly, monthly)
- Federal filing status (single, married filing jointly, head of household)
Some may ask for additional information as well. Once you input your information, the calculator will tell you your tax liability. You can select how much tax you’ll owe for the whole year or how much you will owe per paycheck.
Never put personal information such as your Social Security or bank account numbers into an online tax calculator.
Using an online calculator is quick and will produce a reasonable guess of how much tax you owe. However, it won’t be a perfect estimate because these calculators don’t include other factors, such as tax deductions or tax credits.
IRS Withholding Estimator
The IRS website has a free tax withholding estimator. It takes longer than an online calculator, but the result will be more accurate.
In addition to questions about your total pay, filing status, and other basic information, this estimator will also ask about:
- Tax credits, such as for child or dependent care
- Tax-deferred retirement plan contributions
- Any Health Savings Accounts (HSAs)
- Current withholding from your paycheck
The IRS estimator will calculate your tax due for the year. It will also tell you how much you are on track to pay through withholding and whether this will produce an over- or underpayment.
Sample Tax Return
Calculate your tax due by completing a sample tax return using tax software or by hand. Use the most up-to-date forms available, as tax rates and rules can change each year. This method will take the most time but will be the most accurate.
In 2025, the IRS is launching Direct File, a free tax filing software. Taxpayers who live or work in one of the 25 participating states can file their tax returns online directly with the IRS.
How to Calculate Your Withholding
Once you’ve calculated your total tax bill for the year, your next step is calculating how much you need to have withheld each pay period to come as close to that number as possible. Divide the total by the number of pay periods you expect to have in the year. For example, if you are paid once a month, you’ll have twelve pay periods. If you’re paid every week, you’ll have 52.
How to Adjust Your Withholding
Once you’ve calculated what your withholding should be per pay period, compare that number to your most recent paycheck. If the numbers match up, you’re set for the year.
If they don’t, however, you’ll need to fill out a new W-4 form. You can print one from the IRS website and deliver it to your employer or HR department. How you fill out the form will depend on whether you pay too much or too little tax.
If You’re Underpaying
If you’re going to owe money when you file your taxes in April, that means you are underpaying because your employer is withholding too little. To fix this, you can withhold additional tax to make up the difference.
The W-4 form has a line where you can enter how much additional tax you would like withheld each pay period. You could also claim fewer withholding allowances on your W-4, which will be less accurate than writing in a specific number.
If You’re Overpaying
f you’re going to get a tax refund when you file your taxes, that means your employer has withheld too much and you’re overpaying. You can increase the withholding allowances claimed on your W-4 to have less withheld from your paycheck.
The simplest method for deciding how many to claim is to use a paycheck calculator to check the results of different holding allowances until the result is as close as possible to your remaining tax liability for the year.
If you use this method, remember that the IRS requires you to have a reasonable basis for your withholding allowances. You may be fined or penalized if you intentionally provide incorrect information on your W-4.
Remember, if you underpay your taxes, you may be subject to penalties and interest separate from the penalties for providing incorrect information. You can avoid these penalties by ensuring that your withholding is equal to the smaller of:
- 90% of your current year’s tax liability
- 100% of your previous year’s tax liability (or 110% if your AGI was $150,000 or above)
You won’t face any penalties if your tax bill is less than $1,000.
The Bottom Line
It’s possible to avoid owing the IRS any money when you file your tax return. If you calculate your withholding, you can use that number to determine whether you’re currently over- or underpaying your taxes. Use that information to fill out a new form W-4 as often as you need throughout the year, and you’ll be set when tax time comes in April. Just be careful not to underpay so you can avoid penalties and interest.
Advisory Services are offered through MRA Advisory Group, a Registered Investment Adviser. It is general in nature that the statements herein are not a complete statement of all information necessary for making an investment decision and is not a recommendation or a solicitation to buy or sell any security. The investments and strategies mentioned may not be suitable for all investors. Past performance is no guarantee of future results. Nothing herein, nor any attachment, shall be considered to constitute (i) an offer to sell, nor a solicitation of an offer to purchase, any security, or (ii) tax or legal advice.