When To Adjust Your W-4 Withholding

Andrew Beattie was part of the original editorial team at Investopedia and has spent twenty years writing on a diverse range of financial topics including business, investing, personal finance, and trading.

Lea Uradu, J.D. is a Maryland State Registered Tax Preparer, State Certified Notary Public, Certified VITA Tax Preparer, IRS Annual Filing Season Program Participant, and Tax Writer.

Suzanne is a content marketer, writer, and fact-checker. She holds a Bachelor of Science in Finance degree from Bridgewater State University and helps develop content strategies for financial brands.

Most employees in the U.S. take the pay-as-you-earn (PAYE) approach, in which estimated income tax is paid throughout the year and then accounted for on tax day of the following year. Employers withhold part of their employees' income for taxes by deducting a portion of their regular salary from their paychecks.

Employers rely on the information all new employees provide on Form W-4. When life changes occur, employees may choose to revise their W-4 withholding.

Key Takeaways

• Taxpayers typically withhold income from their paychecks for federal income tax.
• Your marital status has a material impact on the taxes that you owe.
• As your family expands and more dependents are added, you may be eligible for additional deductions and tax credits.
• You can change how much to withhold by submitting a revised Form W-4 to your employer.

Life Changing Events

• Marriage: If you are married and filing a joint tax return, your taxes may be impacted in one of two ways. First, if your spouse earns an income, your household withholding may need to increase. Second, if your spouse doesn't work, your overall withholding will likely decline.
• Divorce: Divorce can alter your household income, but there is also the matter of alimony. Alimony payments are not tax deductible for the payer and alimony recipients do not have to declare alimony as income.
• Birth or Adoption: The birth or adoption of a child adds a dependent to your household and lessens the overall tax burden. To capitalize quickly on the credits and increased deduction, consider reducing withholding.
• Major Expenses: When purchasing a home, you can update your withholding in anticipation of tax benefits. There are credits for first-time homebuyers, education credits, dependent care expenses, medical expenses, and charitable donations.
• Non-Wage Income: You must adjust your withholding to account for any non-wage income from side businesses, stock dividends, or interest income. If you successfully invested and sold stock or cryptocurrency for a profit, the proceeds are subject to short-term or long-term capital gains, depending on your holding period.
• Working Two Jobs: Two-income households and individuals who work multiple jobs are vulnerable to withholding disparities. For example, working two jobs where each pays $25,000 could push a taxpayer into a higher tax bracket. However, each withholding form may indicate that the taxpayer earns only $25,000 and falls within a lower tax bracket.

When your children grow up, consider readjusting your withholding as you may no longer be eligible to claim them as a dependent.

How To Complete Form W-4

The IRS features a useful withholding calculator on its website. Form W-4 contains useful instructions that can help you estimate your withholding correctly. Here's how to adjust how much income is withheld for taxes and complete Form W-4, which is available on the IRS website:

1. Use the IRS online Tax Withholding Estimator to estimate your federal income taxes.

2. Contact your employer to revise your federal income tax withholding.

3. If you have multiple jobs or you and your spouse work, complete Step 2 of Form W-4. The information from this step is used in the steps below.

4. If you have dependents, complete Step 3. This step determines what portion of your income is reduced due to the dependents you claim.

5. If you receive other income, such as interest, dividends, or retirement income, enter the amount in Step 4(a).

6. If you anticipate a deduction(s) other than the standard deduction, enter the amount you expect to claim in Step 4(b). You can use the Deductions Worksheet attached to Form W-4 to figure the amount.

7. If you expect that you'll need to pay more taxes, you can opt to withhold an extra amount by entering that figure in Step 4(c).

8. Upon submitting a revised form to your company, ensure that the appropriate changes have been made by comparing your previous and current pay statements. Changes to your withholding amount may be delayed by one or two pay cycles.

Is It Better to Withhold More or Less Taxes?

If you want to avoid paying taxes when you file your tax return, it is better to withhold more income throughout the year. However, there is a lost opportunity when withholding more than necessary. By overpaying taxes, you lose the chance to invest those funds and potentially grow your capital.

Will Changing Withholding Affect My Paycheck?

Yes, changing your tax withholding will change your take-home pay amount, though your gross pay will not change.

How Often Can I Revise My Withholding?

If your employer withholds taxes on your behalf, you can submit a revised Employee's Withholding Certificate (Form W-4) as needed.

The Bottom Line

When life changes occur, it may be necessary to resubmit a W-4 with an adjusted withholding amount. Paying too much tax throughout the year means a refund. However, if you pay too little, you may be surprised by a large tax bill.

1. Internal Revenue Service. "Publication 15: (Circular E), Employer's Tax Guide."
2. Internal Revenue Service. "Publication 505 Tax Withholding and Estimated Tax."
3. Internal Revenue Service. "Publication 504 Divorced or Separated Individuals."
4. Internal Revenue Service. "Topic No. 607 Adoption Credit and Adoption Assistance Programs."
5. Internal Revenue Services. "Frequently Asked Questions on Virtual Currency Transactions."
6. Internal Revenue Service. "Two-Income Families, Taxpayers Working Multiple Jobs Should Check Withholding Amount."
7. Internal Revenue Service. "Tax Withholding Estimator."
8. Internal Revenue Service. "2024 Form W-4."

The phrase taxation without representation describes a situation when a population is required by law to pay taxes without receiving government representation in return.

A gambling loss is a loss resulting from risking money or other stakes on games of chance or wagering events with uncertain outcomes.

The alternative fuels credit, as outlined by the Internal Revenue Code, is a nonrefundable tax credit for non-alcohol alternative fuel users.

The federal first-time homebuyer tax credit was ended in 2010 but there are other state and federal programs designed to encourage homeownership.

The Uniform Gifts to Minors Act (UGMA), developed in 1956 and revised in 1966, enables someone to give or transfer assets to an underage beneficiary.

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