How to Reduce Tax Withholding

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Tax withholding can be reduced by completing Form W-4
Tax withholding can be reduced by completing Form W-4 (Image: A young woman holding a pen, doing her taxes image by Christopher Meder from Fotolia.com)

Tax withholding is the practice of deducting money from an employee’s paycheck and paying it directly to the Internal Revenue Service as a form of prepayment of federal taxes. An employee claims a number of withholding allowances on their W-4 form in order to raise or lower the amount of earned income withheld for taxes. To reduce tax withholding, an employee must increase their number of withholding allowances.

Things You'll Need

  • IRS Form W-4
  • IRS Worksheets 1 and 9

Determine your federal withholding. Visit the IRS’s withholding online calculator (see "Resources"). This calculator will show an employee their federal tax bracket as well as their projected withholding. Alternatively, you can print IRS Worksheets 1 and 9 and use them to determine your federal withholding.

Request IRS Form W-4 from your employer or print it directly from the IRS’s website (see "Resources"). On line 5 of Form W-4, fill in your number of withholding allowances based on the information calculated by the IRS’s withholding online calculator or Worksheets 1 and 9. Additionally, on line 6, you can have extra monies withheld. If you have elected this option before and are reducing your tax withholdings, leave it blank or write in “0”.

Make a copy of your worksheets (if any) as well as a copy of your completed W-4, then return the completed W-4 to your employer. The changes generally approximately take two to six weeks to take effect.

Tips & Warnings

  • Consider withholding extra from each paycheck by completing Line 6 of Form W-4 so you will not owe taxes at the end of the year.
  • Lowering your tax withholding may give you more in your paycheck, but reducing your tax withholding too much will make you liable for owing more in federal taxes.

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