Many taxpayers discover at filing time that their tax payments during the year didn’t align with their actual liability. Either too much or too little was withheld from their paychecks. A small difference is expected, but withholding that’s significantly off target can create challenges.
Overwithholding reduces the amount of money available to you throughout the year. Significant underwithholding can result in a large balance due, along with potential interest and penalties.
If you received a large refund or owed a substantial amount when filing your 2025 tax return, now is a good time to review how much tax is being withheld from your income for 2026. Fine tuning your withholding can help you better align your payments with your expected tax liability and avoid surprises at filing time.
Review Your Income and Withholding
If most or all of your income comes from wages, your employer withholds amounts from each paycheck intended to cover your annual income tax liability. These withholding amounts are based on IRS tables that estimate a typical worker’s tax obligation at your income level.
However, your situation may differ from someone with similar compensation. For example:
- You may qualify for larger deductions or credits, making standard withholding too high.
- You may have additional income from investments, side work, or other sources, making withholding too low.
Adjust Your Withholding If Needed
One of the best ways to minimize overpayments or underpayments is to estimate your tax liability for the year and adjust your withholding accordingly.
You can make changes by completing a new Form W-4, Employee’s Withholding Certificate, with your employer.
The IRS Tax Withholding Estimator can also help. It now reflects key provisions of the One Big Beautiful Bill Act (OBBBA), including:
- Elimination of taxes on qualified tips and qualified overtime, subject to applicable limits
- New deductions for seniors
- New deductions for auto loan interest
- Updates to tax breaks related to families, homeownership, and charitable giving
After submitting an updated Form W-4, changes to your paycheck withholding may take several weeks to take effect, so plan accordingly.
Revisit Withholding After Major Life Changes
Certain life events can significantly affect the accuracy of your withholding. It’s important to review your Form W-4 if you:
- Experience a significant increase or decrease in income
- Get married or divorced
- Have a child or add a dependent
- Buy a home
- Receive new sources of income not subject to withholding
Even if you’ve already adjusted your withholding, revisiting it after a major life event can help keep you on track.
Use Withholding Strategically
If part of your income isn’t subject to withholding, estimated tax payments may also be necessary. However, increasing withholding can sometimes help you avoid penalties for underpaying estimated taxes.
Unlike estimated tax payments, withholding is generally treated as if it were paid evenly throughout the year, regardless of when it’s actually withheld. This can create planning opportunities.
For example, you may be able to:
- Increase withholding from your wages
- Increase withholding from your spouse’s wages if married
- Increase withholding from IRA or retirement plan distributions if you’re retired
Find the Right Balance
Keeping your withholding aligned with your expected tax liability can improve cash flow throughout the year and help you avoid unexpected tax bills at filing time.
Our team can review your current withholding and estimated tax payments, project your expected tax liability for the year, and help determine whether withholding changes may make sense for 2026. If you’d like guidance on adjusting your withholding strategy, schedule a consultation with our team to discuss your situation and plan ahead with confidence.