The Internal Revenue Service is urging taxpayers to review their federal tax withholding in mid-2025. Officials say making adjustments now can help prevent unexpected tax bills or penalties when filing tax returns in 2026. The agency stresses that proper withholding ensures workers pay the correct amount of federal income tax during the current year.
The federal income tax system is built on a pay-as-you-go model. Taxes are withheld from regular pay each pay period or covered through estimated tax payments for those with self-employment income. If too little is withheld from wages, taxpayers may face a larger balance, penalties, or a smaller refund at tax time. Withholding too much reduces take-home pay throughout the calendar year but may result in a larger balance refunded at filing.
According to the IRS, using the tax withholding estimator can help taxpayers align their estimated withholding amount with their actual tax liability. It prevents surprises and gives employees more control over their money.
The IRS advises mid-year reviews for certain groups. Gig economy workers and individuals with self-employment income often lack automatic payroll services and must estimate payments directly. People working multiple jobs or combining wages from an employer with additional income, such as investment earnings, should also review their tax situation.
Taxpayers who claim credits like the child tax credit, income credit, or other tax credit programs benefit from checking eligibility mid-year. Life changes such as marriage, adoption, or a new dependent can increase or reduce taxable income. Homeowners with itemized deductions or those planning to claim the standard deduction may also need adjustments. Anyone who had a larger balance due or received a smaller refund in a prior year should pay close attention.
Employers use IRS Form W-4 to calculate how much tax is withheld from your paycheck. Filing status, dependents, withholding allowances, and additional income affect the estimated withholding. Changing your mid-year tax withholding decision allows employees to plan for the correct amount. Workers can file a new W-4 form with their employer to increase or decrease withholding based on expected taxable income and deductions.
IRS data shows that for the 2024 tax year, nearly two-thirds of taxpayers received refunds totaling about $270 billion. The average tax refund was just under $2,900. At the same time, many taxpayers faced penalties for underpayment of federal tax, highlighting the need to estimate withholding carefully.
The IRS tax withholding estimator, available online, requires basic information such as a recent paystub, the latest tax return, and details about additional income. The tool considers wages, deductions, credits, and filing status to calculate how much tax should be withheld from your paycheck. It shows how changes will affect your refund, a larger or smaller balance owed at filing.
The estimator is handy for taxpayers with capital gains, self-employment income, student loan interest deduction, or other deductions that alter taxable income. For complex cases involving tax law issues such as the alternative minimum tax, nonresident aliens, or multiple forms of income, the IRS directs taxpayers to Publication 505 or a trusted tax preparer.
The IRS recommends submitting a new W-4 form to your employer as early as possible in the tax year. Adjustments then apply to more pay periods, reducing the chance of owing too much or having too much withheld from your paycheck. Payroll services will use the new withholding amounts with the following payment cycle.
A mid-year review is vital after major life changes. Marriage, divorce, or the birth of a child can shift taxable income, deductions, and eligibility for a tax credit. Adjustments also help students or parents claim the student loan interest deduction or earned income credit.
Taxpayers with capital gains, itemized deductions, or state taxes that affect their overall tax liability should review IRS guidance closely. A tax preparer can help individuals who are unsure how much tax to withhold or estimate withholding amounts for unusual tax situations. The Social Security Administration provides information on wages and Social Security income that may also affect federal tax withholding.
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