When to Change Tax Withholdings — and How to Do It

With tax season upon us, you might be wondering whether or not you’ll owe the government money. How much you owe or how much you’ll receive in a refund depends a lot on your tax withholdings from your paychecks during the year.

You’ve probably been dealing with withholdings since you were first employed, but many people still don’t know what that means. It’s vital to make sure you’re getting the right amount taken out so you’re not surprised by a bill at the end of year. And although your employer does the work of collecting the funds, it’s your job to ensure the amounts are right.

Here’s what you need to know about tax withholdings, including when and how to adjust them.

What Are Tax Withholdings?

Tax withholdings are the wages your employer sets aside for the purpose of paying federal and state income taxes. In short, it’s money you earn that you never see because it’s funneled directly into Uncle Sam’s hands.

Tax withholdings are determined by IRS Form W-4which you fill out when you start a new job or when you want to adjust your withholdings — which we’ll get to in just a moment. You can see the exact dollar amount of your tax withholdings on your pay stub each pay period, and you can adjust your withholdings by submitting a new W-4 as often as you wish.

How Are Tax Withholdings Calculated?

Your employer calculates your tax withholdings based on your responses to the W-4 Form. The W-4 form was redesigned in 2020 to help people more accurately calculate their federal income tax withholdings. The IRS mandates this new form for new employees, but if it’s been a couple years since you’ve submitted a W-4, your withholding might still be calculated based on the old form.

If you haven’t updated your W-4 recently, check out the box below for how the W-4 has changed.

New W-4 Forms 2020

The W-4 (Employee’s Withholding Allowance Certificate) was redesigned in 2020 to make it easier to use and to complement…