How to Adjust Tax Withholding

If you discover that the tax withholding from your regular paycheck is either too high or too low, you can adjust the withholding amounts up or down by filing a new Form W-4 with your employer. If you are making estimated tax payments in addition to tax withholding from wages, it would be beneficial to increase wage withholding to the point where estimated tax payments are no longer necessary.

Instructions

Difficulty: Moderately Easy

1. Review the year-to-date wage earnings, along with those of your spouse, and other taxable income at mid-year. Determine if the tax being withheld is too much or too little based on the projected earnings and withholding for the remainder of the year. Estimate your itemized deductions, or use your standard deduction, plus exemptions to arrive at your estimated taxable income and tax liability for the year.
2. Check if the estimated tax withholding for the year will be sufficient to avoid an underpayment penalty. There is a safe harbor if your tax withholding will be at least what your tax liability was for the prior year, or 110 percent of that amount if your adjusted gross income is over $150,000, or 90 percent of your current year tax liability.
3. Download Form W-4 Employees Withholding Allowance Certificate from the Internal Revenue Service (IRS) website. Adjust your filing status and/or the number of exemptions claimed, either more or less, to increase or decrease the amount of tax withheld in each pay period.
4. Submit the revised Form W-4 to your employer who will implement the changes that you are requesting. Verify that the changes were correctly made at the next payroll date, and if more tax withholding is still necessary, you can request specific additional amounts to be withheld from each paycheck.

Tips & Warnings

• Total tax withholding for the year is divided equally over the 4 quarters of the year whereas estimated tax payments are counted in the quarter when made, which could still result in underpayment penalties in the earlier quarters.