The 15-minute withholding checkup

By Tom, CPA · Updated October 27, 2026

Part of: Easy Tax Strategies

TL;DR: Grab your latest pay stub and last year's return, run the IRS Tax Withholding Estimator, and submit a new Form W-4 to payroll if it says you are far off. Married couples who both work need to coordinate. Recheck after any big change: a new job, a raise, a baby, a side hustle or new deductions like the 2025 law's tips and overtime deductions.

Educational only, not tax, legal, or investment advice. Examples are illustrations, not predictions. Rules and limits change; verify current figures and talk to a qualified professional about your situation.

A big refund feels like winning a prize. It is actually the IRS returning an interest-free loan you made by accident. A big balance due feels like a mugging, possibly with a penalty attached. The goal is the boring middle: withholding close to your actual tax. Getting there takes about fifteen minutes and one official tool.

Steps follow the IRS Tax Withholding Estimator and the 2026 Form W-4, checked October 27, 2026. Part of easy tax strategies. The deep version is the W-4 withholding guide.

CPA Warning Label: Underpaying through the year can trigger an underpayment penalty even if you pay in full by April; the safe harbors are based on last year's tax or 90% of this year's.

Gather pay stub

You need:

• Your most recent pay stub (and your spouse's), showing year-to-date wages, federal withholding and pre-tax deductions like 401(k) and HSA.
• Last year's tax return, for a sanity check.
• Estimates of other income: interest, dividends, side income, capital gains.
• Expected deductions and credits: children, IRA contributions, and for 2025 through 2028, any qualified tips, overtime pay, car loan interest or senior deduction you expect.

Run estimator

The IRS Tax Withholding Estimator on irs.gov asks for your filing status, income, withholding to date and expected credits, then projects whether you will owe or get a refund and suggests W-4 entries. It does not ask for your name or Social Security number. Use a pay stub from the most recent pay period, since the tool annualizes year-to-date figures. Mid-year or later, it accounts for what has already been withheld.

Adjust W-4

The current Form W-4 has five steps; most people only touch a couple:

• Step 2: multiple jobs or a working spouse.
• Step 3: dependents and other credits, which reduce withholding.
• Step 4(a): other income not subject to withholding, which increases withholding.
• Step 4(b): deductions beyond the standard deduction, which reduce withholding.
• Step 4(c): extra flat withholding per pay period, the easiest dial to turn.

Submit the new form to your employer's payroll, not the IRS. It takes effect on a future paycheck, usually within a cycle or two.

Spousal coordination

Two-earner couples are the most common underwithholding victims. Each employer withholds as if that job were the household's only income, so both paychecks use the lower brackets and the standard deduction, and the combined withholding falls short. Fixes:

1. Run the estimator once for the household, then follow its instructions for each W-4; it usually puts the adjustment on the higher-paying job.
2. Or check the box in Step 2(c) on both W-4s, which works when the jobs pay roughly the same.
3. Or add a flat amount on Step 4(c) for one spouse.

Example

Illustration: Frugal Fran and her spouse each earn $90,000 in 2026 and both W-4s were filled out as single earners with no Step 2 box checked. In October, the estimator projects $2,400 owed at filing. With six pay periods left (biweekly, one spouse), Fran adds $400 per paycheck on Step 4(c): 6 × $400 = $2,400. The balance due falls to about zero. In January, she updates both W-4s properly so the extra withholding spreads across 26 paychecks next year: about $92.31 per paycheck.

Lavish Larry prefers a $6,000 refund every April "as forced savings," which is $500 a month he could have put in a high-yield account or his 401(k) instead.

Penalty safe harbors

You generally avoid the underpayment penalty if withholding and timely estimates cover at least:

• 90% of this year's tax, or
• 100% of last year's tax, or 110% if last year's AGI was over $150,000 ($75,000 married filing separately).

Or if you owe less than $1,000 after withholding. Withholding is treated as paid evenly through the year regardless of when it happened, which makes a December W-4 change or an IRA distribution with withholding a useful catch-up tool; see withholding vs. estimates.

Side income and retirees

Withholding is not only for W-2 workers. If you have a side hustle, you can raise withholding at your day job to cover the side income's income tax and self-employment tax instead of making quarterly estimates. Retirees can request withholding from pensions on Form W-4P, from IRA distributions on Form W-4R, and from Social Security on Form W-4V. Early retirees doing Roth conversions often cover the tax by withholding from a December IRA distribution, since that counts as paid evenly through the year.

Common mistakes

• Using an old W-4. Forms from before 2020 used allowances; the current form works differently, and many people never updated.
• Ignoring the second job. Both jobs withholding as if each were the only job leads to a balance due.
• Forgetting bonuses. Supplemental wages are often withheld at a flat 22%, which may be too low for higher earners.
• Claiming exempt incorrectly. Exempt status is only for people who had no tax liability last year and expect none this year, and it must be renewed each year.
• Overcorrecting. Set a reminder to undo a temporary Step 4(c) catch-up in January.

Recheck

Rerun the estimator when:

• You change jobs, get a raise or bonus, or a spouse starts or stops working.
• You have a child, marry or divorce.
• A side hustle or investment income grows.
• You start claiming new deductions such as qualified overtime or tips.
• Every January, with the new year's pay stub.

Bottom line

Fifteen minutes with your pay stub and the IRS estimator beats a surprise in April, in either direction. Aim for a small refund or small balance due, and recheck when life changes.