Mid-Year Tax Withholding Check-Up

Written by Wendy Stultz   // July 7, 2011   // 10 Comments

Tax extension

We are half way through 2011 already. Folks who filed extensions for the 2010 tax return must have those filed by October 15, 2011, but I am already going to start in on making sure you are in good stead for the upcoming 2011 filing.

Some people like to get a refund from the United States Treasury from their tax return. This isn’t free money.  This “refund” comes from an overpayment of the tax amount due for the tax period. This is usually due either to overwithholding from wages or from refundable credits, including the Earned Income Tax Credit for low income earners, usually with dependent children. Since the IRS does not give you interest on money that you overpaid through the course of the year, you are better off to properly withhold throughout the year and get a smaller refund on your return. By properly withholding for your tax situation, you have potentially more money on your pocket each payday, rather than getting the larger refund at the end of the year. If you took that same amount in excess withholding and put it in a savings account or CD, you would be earning interest on your money. If you went one step further and put that same amount in an IRA or 401K/403B type retirement investment account, you would not, per se, have access to the money throughout the year, but you would potentially reduce the amount of taxes you owed, and so possibly increase your refund again!

If you have owed for the previous year or more, then you are likely underwithholding or not paying enough in tax deposits over the course of the year. This is a harder situation to fix, since there is no refund coming to help cover the debt to Uncle Sam. You have to increase your tax withholding, which will lower your paycheck, or you have to start or increase your Estimated Tax Payments. Trust me- it is easier to do this now and have some time to adjust and make a plan, than waiting until the end of the year and realizing that you owe more than you can comfortably come up with by the IRS deadline.

If you have gotten a small refund or owed only a small amount (say $100 or so in either direction), you are the golden child- go to the head of the class, put a star on your paper, have a cookie, and be happy that you are exactly on target in regards to your tax situation. This is really the ideal- and it is a rare situation. When you consider all of the moving targets that make up a tax situation, any change can throw off your tax planning for the year. Some factors that impact your taxable income can include:

  • changing jobs
  • having more than 1 job reported on the tax return
  • changing filing status (single, married filing separate, married filing joint, head of household, or widow/er)
  • adding or removing a dependent
  • receiving or paying alimony (but not child support)
  • moving/changing states
  • buying a house
  • major medical expenses paid in any tax year
  • interest or dividends
  • capital gains or losses
  • self-employment
  • education credits
  • Earned Income Credit
  • unemployment income (which is still taxable income)
  • and many others

So how does the IRS expect you to have the right amount of taxes withheld from your pay? A good place to start is to complete the W4 form for your employer, complete a new one anytime you have a change in status, and check what you have on file at the beginning of each year. Please understand that this form can often be wrong if you have other sources of income or if you have other credits or deductions which lower your taxable income. Also note that the number of dependents for the W4 form are for the HOUSEHOLD, so if you are married and have 1 child, you and your spouse have a TOTAL of 3 which can be 3 for you and 0 for your spouse, 2 for you and 1 for your spouse, etc. State information may vary and you can withhold differently for the IRS and for your state, if required. For detailed instructions and for help with the more complex situations, see IRS Publication 919- How do I Adjust My Tax Withholding.

Another very useful tool is the IRS withholding calculator. By using your previous year return and you most recent paystub from all W2 wage earning positions, along with some estimates for anything else that might affect your tax situation, you can get an estimate of the total taxes you will need to have paid for the current tax period. Now that we are half way through the 2011 tax year, the calculator can be pretty accurate if you don’t expect any changes. This is a free and easy tool to estimate your tax burden, and I recommend you use it as a mid-year check up, as well as any time you have changes. I also like to run the same calculator about the end of October to make sure that if I need to change my withholding up or down before the end of the year, I can do so without completely throwing off my holiday season budget.

Some types of income don’t automatically suggest or require tax withholding, like retirement income. There are tools to calculate what you might need to have withheld there, too. For example- former military or government employees can use the Office of Personnel Management Federal Tax Withholding Calculator. This works much the same as the IRS withholding calculator discussed above. I also mentioned earlier that unemployment income is potentially taxable income. Remember to include any unemployment income in your tax calculations if it is applicable to your household.

Now, changing your withholding will change your take-home pay amount. If you want to see how this will affect your actual paycheck, you will need to run a different kind of calculation. A free salary or hourly wage calculator can give you a pretty good idea of how any deductions, including changes to tax, will affect your paycheck, regardless of how frequently you are paid. DO make sure that you are as accurate as possible with what you are using in the calculator- remember that these estimates are meant to be just that- estimates, but can only be as good as the information you put into the calculator in the first place. If you take the time to do it using your current withholding and deductions, you can see how close it comes to your actual paycheck amount. Then you will have an even better idea of how close the changed situation paycheck estimate will be.

Having at least a basic idea of your tax situation makes good financial sense. Take 20 minutes out to give yourself a summer check-up. You may be very glad you did.


  1. By Rick, February 23, 2019

    Very informational and I like how you listed tools to use. My Wife and I will need to look at the IRS withholding calculator. We seem to always pay so it will be nice to know what to budget for. Good piece!

  2. By eMoney, February 23, 2019

    Really good info. I know that for many people entering the right information on a W4 form is confusing. Actually, I know a married couple that made a mistake on entering the amount of dependents, and they ended up owing thousands of dollars in taxes.

  3. By John Dough, February 23, 2019

    I love all the useful information provided by Tax-y Lady, most of the time as soon as the letters IRS are mentioned, I curl into a ball and shut off my ears. These factual tidbits encourage me to research any and all my tax related questions further. Thanks.

  4. By Mark Chen, February 23, 2019

    I have such a fear of owing the IRS, come tax time, that I have more withheld from my check than I need. I like getting the refund, too. Even if I could have had the money in each check, it feels good to get the lump-sum in the refund check. With interest rates so low on my savings account, I don’t feel I am losing out by not putting the ‘extra money’ away each check.

    • By Katrina, February 23, 2019

      Definitely agree with you…don’t like surprises when it comes to tax time! Thought I do commend the people who are able to break even (or close to). Having that extra money on my paycheck would definitely help out, but I’m horrible at knowing where that imaginary line is. Anyone have tips? They would be greatly accepted!!

      • By Mark Chen, February 23, 2019

        Taxy-lady mentioned the IRS withholding calculator and included a link. This tool should guide us exactly how much we have to have withheld, in order not to owe the Man come April 15th. Still, I am going to err on the side of caution and have a little more withheld than necessary, just to be safe (even if I am being kinda lame).

  5. By JBanks, February 23, 2019

    I used the calculator and it looks like I’ll have to pay next year – again. I don’t want a big refund – giving the feds my money as an interest-free loan each year is bad money managment, as you say – but I want my April tax bill to at least be manageable. How will contributing to a 401k or IRA help me do that?

    • By Tax-y Lady, February 23, 2019

      In general, contributing to a 401K or IRA reduces your taxable income. (Sometimes called an “above the line deduction”)This logically reduces the tax you owe on that taxable income. There are limits and rules about both IRAs and 401K/403B contributions. You CAN actually contribute to both if you meet the requirements for both. I really like 401K/403B and IRAs for 2 reasons: 1) you control your taxable income in the current year while saving for retirement, and 2) the money grows tax-deferred, and you pay taxes on the money WHEN you access that money, which generally means when you have a more limited income and therefore are in a lower tax bracket. Look for more information on these topics coming soon from me.

      • By Katrina, February 23, 2019

        I definitely look forward to that upcoming discussion! I’ve been looking into a IRA vs 401k and there is so much information on both I’m still trying to figure out which is best for me! Can’t Wait!

  6. By dolrdolrbill, February 23, 2019

    I am usually reluctant to read an entire article about taxes. However, with me getting married this year, your article was a wake up on preparing for that change. Excellent information. Much appreciated.


Leave a Reply

Your email address will not be published. Required fields are marked *