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altheaf
New Member

Reduce tax owed from HYSA

Hi, how do I reduce the amount I owe for taxes from HYSA? I think that my job is withholding enough based on my income but not too sure. Should I ask my job to withhold more to account for the interest earned on my HYSA? Or should I be making estimated tax payments? I ended up having to pay 1.5k in taxes this year. Luckily, there was no penalty for underpayment since I met the conditions. But I would like to avoid the possibility of underpayment

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1 Reply
SusanR2
Employee Tax Expert

Reduce tax owed from HYSA

If you owed due to the interest on your Hight Yield Savings Account and you know you will have that income again, then I would suggest you have your employer withhold a little more from your paycheck.  Technically, you could make estimated payments instead, but you will feel it less if you just increase your paycheck withholdings!  

If you are going the paycheck route, you'll submit a new W-4 form to your employer.  You can take the amount you owed last year and divide it by the number of paychecks left for this year to see how much additional should be withheld each check and fill that number in on question 4C of the W-4 form.  (This assumes your interest income will be around the same.  Increase or decrease based on your numbers.)   Alternatively, you can fill in the amount of the additional income you want taxed on line 4A of the W4 form.  Either way will get more withheld from your paycheck for that interest.  

 

I think that's your best bet to solve the problem without having to make 3 large estimated payment checks!  (Using $1500 for example, that would be 3 payments of $500 each (since there are 3 quarterly estimated payments left for 2025) as opposed to $107 per paycheck additional deduction assuming you have 14 biweekly paychecks left.)  Of course, you should do what works best for you financially!

 

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