Proper tax withholding now is key to avoiding surprises when you file next year. Making any needed adjustments early means you won’t have to make a big change later in the year to catch up.
The IRS Tax Withholding Estimator is a free online tool that helps workers, independent contractors and retirees determine if they have the right amount of federal income tax withheld from their paychecks. Using it can prevent you from having an unexpectedly large tax bill or a substantial refund when you file in 2026.
How the IRS Tax Withholding Estimator helps taxpayers plan ahead
Taxes are pay-as-you-go, which means you need to pay their tax as they receive their income. They do this through withholding.
For employees, “withholding” refers to the federal income tax portion of each paycheck that an employer takes out for tax purposes. It can also mean the amount from earnings self-employed people and others voluntarily set aside to pay their estimated taxes.
After using the Tax Withholding Estimator, taxpayers can determine if they need to submit an updated Form W-4, Employee’s Withholding Certificate, to their employer or adjust the amount they voluntarily set aside for tax purposes.
By adjusting tax withholding, taxpayers can:
- Prevent owing money and potential penalties at tax time.
- Adjust withholdings to increase take-home pay instead of waiting for a refund.
Use the tool once a year
By using the estimator once a year, you can manage their estimates based on any personal life change, such as buying a home, changing jobs, having a child or changing your marital status.
For people who recently completed their 2024 tax return, the IRS advises using the IRS Tax Withholding Estimator to consider all income sources such as full-time wages, side jobs and any sale of services or commodities typically reported on Form 1099-K.
Required documents
For an effective tax withholding estimate, taxpayers will need certain documents including:
- All income statements, including those of their spouse if filing jointly
- Data from other sources of earnings
- Their most recent income tax return
If you have any questions, please reach out to the Crosslin tax team. We are here to help!
