W-4 Update After Raise

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I get a raise every year and have owed taxes every time. How do I update my W-4 after getting a raise so I don't owe taxes again this year?

Ask the Experts - W4 - May 2025

AmyATXAnswer

Level 3

The IRS tool works against the current year (2025) so if you only owed a relative small amount (hundreds) that same amount of income would have fewer taxes on it using the 2025 rates

I'd also suggest double checking your investment income inputs. Interest & dividends are taxed slightly differently than qualified dividends and capital gains/losses. If you skipped that part on your estimate, then you also would have shown that you would have a higher amount being withheld than if that income was part of the estimate.

To add the Vanguard/investment income, there is a section for "Other sources of Income" under which is "Investment Income". When you click onto that box, you get addition options for items like your interest/dividends/stock gains/losses/etc. The more accurate your inputs, the more accurate the estimate!

AmyATX

Level 3

The (new) W-4 has a place where you can withhold additional amounts per paycheck. For example, if you owed money for 2024 (let's say $1,200), then you can add $50 as a manual add to your W-4 if you are paid twice a month which will then withhold (full year) an additional $1,200. When you get a raise, it is a good time to update that additional amount.

The IRS also has a free W-4 calculator that helps you determine what additional amount may be needed in your situation. It also takes into account income that does not have withholding (such as investment income, rental income, etc). Here's that tool: https://www.irs.gov/individuals/tax-withholding-estimator

Thanks for asking your question!

srwong41Author

Level 2

I used the calculator and input my most recent paystub information all correctly and it says that I am actually withholding more than needed per paycheck; however, last year I owed money (hundreds) in federal and state. I think this may be due to my brokerage accounts with Vanguard? How do I use the calculator to add in the returns for that? How do I know how to use this correctly to adjust the form if the calculator is giving me information that contradicts the empirical results?

AmyATX

Answer

Level 3

The IRS tool works against the current year (2025) so if you only owed a relative small amount (hundreds) that same amount of income would have fewer taxes on it using the 2025 rates