Understanding your withholding: Completing Form W-4 and reviewing it throughout the year

• Author By Payroll Office
• September 3, 2025

When you start a new job, one of the first and most important forms you complete is the Form W-4, also known as the Employee's Withholding Certificate. This document tells your employer how much federal income tax to withhold from your paycheck. The goal is to have the correct amount of tax withheld throughout the year so that when you file your tax return, you neither owe a large sum nor receive an overly large refund.

Completing Form W-4: the basics

The IRS significantly redesigned Form W-4 in 2020 to align with the Tax Cuts and Jobs Act of 2017, which eliminated personal exemptions and increased the standard deduction. The new form is a one-page document with five steps, two of which (steps one and five) are required for all employees. The remaining steps are only necessary for specific situations.

• Step 1: Personal information. This is where you provide your basic information, including your name, address, Social Security number, and your filing status (e.g., single, married filing jointly, head of household). Your filing status is a key factor in determining your tax rate and the amount of tax withheld.

• Step 2: Multiple jobs or spouse works. This section is crucial if you have more than one job at a time or if you are married and filing jointly with a working spouse. The tax system can withhold too little tax in these situations if not addressed. The form offers a few options, including using the IRS's online Tax Withholding Estimator or the Multiple Jobs Worksheet included with the form.

• Step 3: Claiming dependents. This step is for employees who have dependents and are eligible to claim tax credits, such as the Child Tax Credit. You will multiply the number of qualifying children under 17 by $2,000 and the number of other dependents by $500, then add the totals to determine a reduction in your withholding.

• Step 4: Other adjustments. This is where you can account for other income not subject to withholding (like interest or dividends), claim other deductions you plan to itemize, or request additional tax to be withheld from each paycheck to cover a potential tax liability.

• Step 5: Sign and date. This final step is required to make the form official.

The ongoing need to review and update your withholding

Many people fill out a W-4 once and never think about it again. However, your life and financial situation can change, which may affect your tax liability. The IRS encourages all taxpayers to review their withholding at least once a year.

Changes that may require you to submit a new Form W-4 to your employer include:

• Marriage or divorce: A change in marital status significantly affects your filing status and potential deductions.

• Having or adopting a child: This can make you eligible for valuable tax credits, such as the Child Tax Credit, which can reduce your tax burden.

• Getting a second job or starting a side hustle: Additional income sources often push you into a higher tax bracket, so you may need to increase your withholding at your primary job to avoid owing taxes at the end of the year.

• Changes in your spouse's employment: If your spouse starts or stops working, or has a significant salary change, your household's overall tax situation changes.

• Major financial events: Buying a home, which allows for deductions for mortgage interest and property taxes, or other significant changes in your financial life can alter your tax picture.

Avoiding a tax bill or a large refund

The goal of properly completing and updating your W-4 is to have your tax liability met throughout the year.

• Under-withholding can lead to an unexpected tax bill when you file your return. In some cases, it could also result in an underpayment penalty.

• Over-withholding means you are giving the government an interest-free loan throughout the year. While a large tax refund might feel like a bonus, that money could have been in your pocket, earning interest, or being used to pay down debt.

The IRS provides an online Tax Withholding Estimator that can help you determine if you need to adjust your withholding. It is a simple and effective tool for making sure your W-4 is accurate for your current financial situation. You can change your withholding at any time by filling out a new Form W-4 and submitting it to your employer's payroll or human resources department.