Prepare for next year: Check your withholding now

• News & Views

• Author By Payroll Office
• May 22, 2025

You should review your withholding now to prepare for annual tax filing next year. Proper tax withholding is crucial to avoid surprises. Making adjustments early can prevent the need for significant changes later in the year.

The IRS Tax Withholding Estimator is a free online tool that helps you determine if you have the correct amount of federal income tax withheld from your paychecks. Using this tool can help avoid unexpectedly large tax bills or substantial refunds when filing in 2026.

How the IRS Tax Withholding Estimator helps taxpayers plan ahead:

Taxes are pay-as-you-go, meaning taxpayers need to pay their taxes as they receive their income. This is done through withholding. For employees, withholding refers to the federal income tax portion of each paycheck that an employer deducts for tax purposes. It can also refer to the amount self-employed individuals and others voluntarily set aside to pay their estimated taxes.

After using the Tax Withholding Estimator, taxpayers can determine if they need to submit an updated Form W-4, Employee's Withholding Certificate, to their employer or adjust the amount they voluntarily set aside for tax purposes. By adjusting tax withholding, taxpayers can:

• Prevent owing money and potential penalties at tax time.

• Adjust withholdings to increase take-home pay instead of waiting for a refund.

Use the tool once a year:

By using the estimator annually, taxpayers can manage their estimates based on any personal life changes, such as buying a home, changing jobs, having a child, or changing their marital status. For those who recently completed their 2024 tax return, the IRS advises using the IRS Tax Withholding Estimator to consider all income sources, including full-time wages, side jobs, and any sale of services or commodities typically reported on Form 1099-K.

Required documents:

For an effective tax withholding estimate, taxpayers will need certain documents, including:

• All income statements, including those of their spouse if filing jointly.

• Data from other sources of earnings.

• Their most recent income tax return.

Publication 505, Tax Withholding and Estimated Tax, provides instructions for taxpayers with complex tax situations that may be difficult to solve through the IRS Tax Withholding Estimator. These cases may involve taxpayers responsible for the alternative minimum tax or other taxes, and those with long-term capital gains or qualified dividends.

For more information, refer to the Tax Withholding Estimator FAQs.