Should You Adjust Your W-4? A Practical Guide to Getting Withholding Right

Every year, millions of Americans file their taxes and are surprised by the result. Either a refund that’s bigger than expected or a balance due that wasn’t planned for. In most cases, the culprit is the same: withholding that doesn’t match their actual tax situation.

The W-4 is the form you gave your employer that tells them how much to withhold from each paycheck. If yours is out of date or was never set up correctly, the results show up on your tax return.

When to Review Your W-4

The best time to review your withholding is any time your life changes. Major events that often require a W-4 update include: a new job or change in income, getting married or divorced, having a child, a spouse starting or stopping work, taking on a significant side income, or purchasing a home that gives you new deductions.

If you got a large refund this year, you’re essentially making an interest-free loan to the government every month. Adjusting your W-4 can put that money back in your paycheck, where you can use it.

If you owed a balance, your withholding is too low, and you’re at risk of underpayment penalties if it happens again. A W-4 adjustment can prevent that surprise next April.

How the W-4 Actually Works

The IRS redesigned the W-4 in 2020, and many people haven’t updated theirs since. The new form is more straightforward, but it also asks for more information to get withholding right.

The key sections:

• Step 1 asks for basic personal information.

• Step 2 covers multiple jobs or a working spouse.

• Step 3 allows you to claim dependents.

• Step 4 lets you add other income, deductions, or request extra withholding.

If your situation is simple, one job, no dependents, standard deduction, the form is straightforward. If you have multiple income sources, a working spouse, or significant deductions, it’s worth getting professional guidance to make sure you’re not under- or over-withholding.

The IRS Withholding Estimator

The IRS has an online withholding estimator that walks you through your current situation and recommends how to fill out your W-4. It’s a useful tool for people with simple situations.

For more complex situations — self-employment income, rental properties, investment income, significant deductions — a CPA can run the numbers more precisely and help you account for factors the estimator might miss.

Self-Employed? Withholding Works Differently for You

If you’re self-employed, you don’t have an employer withholding from your paycheck. Instead, you’re expected to make quarterly estimated tax payments throughout the year. The same principle applies: getting your estimated payments right means no big surprises at filing.

Under-paying estimated taxes results in an underpayment penalty, which many self-employed individuals discover to their surprise when they file.

The Goal: As Close to Zero as Possible

The ideal outcome at tax filing isn’t a big refund. It’s not a balance due. It’s as close to zero as practically achievable. That means you’ve had your money in your pocket all year, and you owe nothing additional when you file.

Most people can’t hit exactly zero — income varies, life happens. But getting into the “small refund or small balance” range is a reasonable goal that a withholding review can help you achieve.

Questions about your withholding? Bring your most recent pay stub and last year’s return to your next appointment. We can review your situation and help you update your W-4 to better reflect where you are now.

Call us at (828) 570-5760 to schedule.

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This blog post is provided for educational purposes only and does not constitute personalized financial, tax, or investment advice. Tax laws are complex, change frequently, and vary based on individual circumstances. Before implementing any strategies discussed, please consult with qualified financial advisors, tax professionals, or CPAs who can assess your specific situation. This content should not be relied upon as a substitute for professional consultation.