Understanding the Basics of Tax Withholding

Each and every year, it’s crucial to stay informed about the most current income tax withholding procedures to ensure you’re not overpaying or underpaying your taxes. This guidance is particularly relevant in light of ongoing adjustments to tax regulations and forms. 

For Employees: Understanding and Adjusting Your Withholding 

Why Accurate Withholding is Key 

Accurate tax withholding aligns the taxes taken from your paychecks with your actual tax liability. This balance is vital to avoid owing a large sum at tax time or lending the government your money interest-free through over-withholding. It is recommended you review your withholdings at least once per year or after every life event to ensure that your withholdings reflect your current situation. 

Steps to Ensure Proper Withholding 

  1. Review Your W-4: Your W-4 form dictates how much tax is withheld from your paycheck. Any life changes, such as marriage, divorce or a new child, should prompt a W-4 review and update. 
  2. Use the IRS Withholding Estimator: The IRS Withholding Estimator is a valuable tool for assessing your tax situation and understanding how much you should ideally withhold.
  3. Consult Professionals for Complex Situations: If you have multiple income sources, significant investments or other financial complexities, consider seeking advice from a tax professional. 
  4. Adjust Withholding as Necessary: If you find discrepancies, submit a new W-4 to your employer. Remember, you can and should update your W-4 anytime your financial situation changes significantly. 

For Employers: Ensuring Compliance and Supporting Employees 

The Role of Employers in Tax Withholding 

As an employer, you are responsible for accurately withholding tax from your employees’ paychecks and remitting it to the government. This requires staying updated on tax laws and withholding guidelines. 

How Employers Can Support Employees 

  1. Provide Access to Updated W-4 Forms: Ensure your employees have easy access to the latest W-4 form and understand how to complete it. 
  2. Educate Your Employees: Consider providing informational sessions or resources about tax withholding, especially when there are significant tax law changes. 
  3. Ensure Accurate Payroll Processing: Regularly review your payroll systems to ensure employee withholding is being calculated and remitted correctly. 
  4. Offer Assistance with Withholding Questions: While you cannot provide tax advice, guiding employees to resources like the IRS Withholding Estimator or professional tax advisors can be very helpful. 
  5. Encourage Review: Encourage your employees to review their withholdings on a regular basis.  This includes when they are a new employee, after they have received a significant increase or have changed from part-time to full-time. Unfortunately, most employees do not review their withholdings until they receive their W2, and it is too late to make changes at that point in time. 


Regular Reviews: A Must for Both Parties 

Both employees and employers should make it a habit to review withholding settings annually or after significant changes. For employees, this means checking if their current withholding aligns with their tax liability and for employers, ensuring their payroll systems are updated and compliant. 


By taking these steps, you can help ensure you’re having the ideal amount withheld, so you can avoid big tax surprises in the future. Reach out to an Adams Brown advisor should you have any questions.