Withholding
Withholding is the amount of money your employer automatically takes out of each paycheck to send to the IRS (and your state, if applicable) as a prepayment of your income tax. Withholding helps you avoid owing a large lump sum when you file your tax return.
💡Simple Definition
Withholding is the tax taken from your paycheck before you get paid. It acts as a year-round payment toward your tax bill.
📋What Determines How Much Is Withheld?
Your withholding amount depends on the information you give your employer on your W-4 form.
Key factors that affect withholding:
- •Your filing status
Single, married, head of household
- •Whether you have multiple jobs
More jobs = need more withholding
- •Whether your spouse works
Two-income households need special adjustments
- •Claimed dependents
More dependents = less withholding needed
- •Extra amounts you request to be withheld
Can add additional dollar amount per paycheck
Good news: You can update your W-4 at any time to adjust withholding. No need to wait for a new year or new job.
💰What Taxes Are Withheld From Your Paycheck?
Federal Income Tax
Main withholding — controlled by your W-4
State Income Tax
In most states (not all states have income tax)
Important: FICA is not optional — your W-4 only affects federal and state income tax withholding. Social Security and Medicare are always withheld at fixed rates.
🎯Why Withholding Exists
Withholding keeps taxpayers from having to pay their entire tax bill at the end of the year. Instead, small payments are sent to the IRS throughout the year.
✅ Too much withheld:
You get a refund when you file
(You essentially gave the IRS an interest-free loan)
⚠️ Too little withheld:
You may owe money when filing
(Could include underpayment penalties)
Goal: Aim to have withholding match your actual tax liability as closely as possible — avoid huge refunds or big tax bills.
📊Quick Example
Your monthly paycheck is $4,000 gross.
Your withholding might include:
After withholding and other deductions (health insurance, 401k, etc.), your net pay is what lands in your bank account.
⚙️How to Adjust Your Withholding
To change your withholding, you must submit a new W-4 form to your employer.
📉 Increase withholding
- ✓ Smaller paycheck now
- ✓ Bigger refund later
- ✓ Avoid owing taxes
📈 Decrease withholding
- ✓ Bigger paycheck now
- ✓ Smaller refund (or owe money)
- ✓ Risk of underpayment penalty
💡 Pro tip:
Ideally, withholding should match your actual expected tax. Use the IRS Withholding Estimator tool to calculate the right amount for your situation.
📅When to Adjust Your Withholding
✓ You got married or divorced
Filing status changes affect your tax situation
✓ You had a child or gained a dependent
May qualify for credits that reduce needed withholding
✓ You or your spouse got a new job
Multiple incomes require withholding adjustments
✓ You got a big refund or owed a lot
Sign your withholding isn't calibrated correctly
✓ You have side income or freelance work
May need to increase withholding to cover additional tax