The IRS's Tax Withholding Estimator: A General Guide

Many taxpayers struggle to get their withholdings just right. That’s where the IRS Tax Withholding Estimator comes in. This free, easy-to-use tool can help you fine-tune how much is withheld from your paycheck so you’re not caught off guard next April.

This tool is an online calculator provided by the IRS that helps you estimate your federal income tax withholding. Based on your inputs, such as income, filing status, dependents, and deductions, it recommends adjusting your withholdings by submitting a new Form W-4 to your employer.

Here are a few reasons to consider using the estimator:

• Avoid a Big Tax Bill or Refund: While a refund may feel like a bonus, it's just the government giving you back your own money, interest-free. On the flip side, owing a big balance can be financially stressful. The estimator helps you hit the sweet spot.

• Keep More of Your Money Now: If you’re consistently overpaying, adjusting your withholding can increase your take-home pay, putting more cash in your pocket throughout the year.

The IRS strongly recommends reviewing your withholding at least once a year or when you experience significant life changes such as:

• You get married or divorced

• You have a child

• You get a new job or side income

• You experience a change in income or deductions

To use the estimator, you’ll want to have some key info handy, including:

• Your most recent pay stub(s)

• Last year’s tax return

• Any estimates of other income (side gigs, investments, etc.)

Once you input the details, the estimator will tell you: If your current withholding is on track, how much more or less should you withhold, exactly how to adjust your W-4, including what to put in each box.

If the estimator suggests adjustments, you’ll update your Form W-4 and give it to your employer. Many payroll systems also let you update this form digitally.

Try out the estimator here. Have any questions? Schedule a meeting with Abell & Advisors today!