Once you receive a paycheck for a full pay period, you will have a clear idea of your income and withholding tax. You can then check your withholding by estimating your tax liability for the year and comparing this to the total projected withholding tax for the year. The Internal Revenue Service (IRS) provides worksheets to help you do this. IRS Publication 919, entitled “How Do I Adjust My Tax Withholding?” has various worksheets that will help you through the process of estimating your tax liability and projecting your withholding. Worksheet 1 is to project your total federal income tax liability for the year, and worksheet 2 is to project your total income tax withholding. You can also use the “IRS Withholding Calculator”, which is a program the IRS offers on its website. You can access this program by selecting “Individuals” under “Information for:” on the IRS home page. The IRS Withholding Calculator will appear on the next page that comes up.
When You Do Your Tax Return for Last Year
When you file your annual income tax at the end of the year, you will know how your withholding matched up with your actual taxes for last year. This may be a good time to adjust your withholding by giving your employer a new W-4. If you ended up owing tax, you may need to reduce the number of withholding allowances so that more tax is withheld. And if you received a large refund for last year, and the level of your income, adjustments, deductions, and credits has not changed substantially this year, you may want to increase the number of withholding allowances so that less tax will be withheld and you will have use of this money during the year, instead of waiting for a refund after the end of the year.