Taxpayers who receive a W-2 paycheck use IRS Form W-4 (Employee’s Withholding Certificate) to control how much federal income tax is withheld from their pay throughout the year.
Why Accurate Withholding Matters for Your Finances
The goal of updating your W-4 Form is to ensure that the federal income tax paid matches your eventual tax liability, helping you avoid major surprises.
- Avoid Penalties: If you under-withhold, meaning you have too little federal income tax taken out, then you risk owing an unexpected tax bill when you file your return and potentially facing a penalty for underpayment.
- Stop Giving an Interest-Free Loan: If you over-withhold, you will receive a large tax refund. However, a large refund essentially means you provided the government with an interest-free loan throughout the year, losing the opportunity to use that money to pay off debt or earn interest in a savings account.
When to Update Your W-4 (The Key Triggers)
While many people only complete a Form W-4 when they are initially hired, taxpayers should submit a new form to their employer any time they experience a major tax situation change in their financial or personal life. Since your employer relies on this form to adjust withholding, failing to update it means your tax payments will not reflect your current situation.
Key major life events that necessitate updating your withholding include:
- Changes in marital status, such as marriage or divorce.
- The birth or adoption of a child or changes in dependent status.
- Starting or stopping a second job, or if your spouse starts or stops working.
- Receiving significant income not subject to withholding, such as interest, dividends, capital gains, or rental income.
- Adjustments related to new tax laws, especially for the 2025 tax year.
Adjusting your withholding is a straightforward process; you simply fill out a new Form W-4 and submit it to your employer’s payroll or human resources department.
Accounting for 2025 Tax Year Updates
The One Big Beautiful Bill Act (OBBBA) includes several provisions beginning in 2025 that affect your required withholding, meaning you should submit a new Form W-4. These changes include an increase in the Standard Deduction and an enhanced Child Tax Credit (up to $2,200 per eligible child). The new law also provides income tax deductions for seniors, qualified tips, qualified overtime, and qualified vehicle loan interest starting in 2025. To incorporate these deductions into your paychecks for the remainder of 2025, you must use the deductions worksheet manually and input the result into Step 4(b) of the 2025 Form W-4.
Need to update your W-4? Our video "How do I update my W-4" guides you through the process using TurboTax.
Additional Resources
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