You should review the federal withholding from your paycheck every year to make sure you're not having too little or too much tax withheld.
If you're an employee, self-employed, or a retiree, you can use the IRS Tax Withholding Estimator to help decide if you should make a change to your withholding. This online tool will guide you step-by-step through the process of checking your withholding and provide recommendations to help you reach your desired refund amount when you file next year.
You can check with your employer to update your withholding or submit a new Form W-4, Employee's Withholding Certificate. Adjustments to withholding You should typically increase withholding if you have more than one job at a time or have income from sources not subject to withholding. If you don’t make any changes, you will likely owe additional tax and possibly penalties when filing your tax return. You should typically decrease your withholding if you qualify for income tax credits or deductions other than the basic standard deduction. If you need to adjust your withholding, you should fill out a new Form W-4, Employee's Withholding Certificate and submit it to your employer as soon as possible, since withholding occurs throughout the year. People who should check their withholding include those:
whose spouse is an employee
who are working two or more jobs at the same time or who only work for part of the year
who claim credits such as the child tax credit
with dependents age 17 or older
who itemized deductions on prior year returns
with high incomes and more complex tax returns
with large tax refunds or large tax bills for last year
Tax Withholding Estimator benefits
The IRS Tax Withholding Estimator can help you:
decide if you should complete a new Form W-4.
understand what information to put on a new Form W-4.
save time, since the tool completes the form worksheets.
You should have your most recent pay statements, information from other income sources, and your most recent tax return ready when you use the Tax Withholding Estimator.
The tool doesn't ask for sensitive information like your name, Social Security number, address, or bank account numbers.
State and local withholding You may also need to adjust your state or local withholding. You can contact your state's department of revenue to learn more.
Resources: Video: How to Use the IRS Withholding Estimator Tax Withholding Estimator FAQs Publication 505, Tax Withholding and Estimated Tax