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If you take a look at your pay stubs, you'll probably notice that certain taxes have been withheld. Employers can take a portion of employee paychecks and send the money to the IRS on their behalf. This money is earmarked for certain tax obligations, such as paying into Social Security.
You might remember filling out IRS Form W-4 when you were hired. This is where you specify how much you want withheld for federal income tax. You can calculate your tax withholding and update your W-4 at any time. The amount you withhold will affect your take-home pay and annual tax liability. Here's how to calculate your tax withholding.
1. Open the IRS Tax Withholding Estimator
The IRS tax withholding estimator is a virtual tool that allows you to ballpark how much you'll owe in federal income tax. After putting in your information, you'll see how your withholding amount affects your net earnings, tax refund or tax due. From there, you can select a withholding amount that feels good for you. It's wise to recalculate your withholding if you've experienced a major life change. That can include:
2. Gather Your Documents
When you're ready to use the IRS tax withholding calculator, be sure to have the following documents on hand:
- Pay stubs for all your jobs. If you're married, gather up your spouse's pay stubs too.
- Information on all other income. That may come from self-employment, side gigs and investments.
- Your most recent tax return.
3. Enter Your Personal Information
The first step is clarifying your tax-filing status. You may be filing as:
- A single person
- A married person filing jointly or separately
- Head of household
- A qualifying widow(er)
You'll then be asked if you're claiming any dependents. You'll also indicate if you have a job or pension that regularly withholds federal income tax from your paychecks or pension payments.
4. Factor in Your Income
You'll be prompted to enter information about any job you'll receive income from this year. That includes salaried positions and jobs that pay hourly. This is also where you'll factor in other sources of income such as:
- Self-employment take-home pay
- Investment income
- Income from unemployment insurance
Now enter the amount of taxes that have already been withheld from other income sources. That might be zero, or your income providers may have withheld federal income tax. If you've made any estimated tax payments, you'll disclose that amount too. Self-employed workers, freelancers and independent contractors are generally expected to make quarterly estimated tax payments to the IRS.
5. Make Income Adjustments
Qualifying for certain tax deductions will reduce your taxable income. You'll be asked if you're eligible to deduct expenses like:
- Student loan interest
- Qualified educator expenses
- Traditional IRA contributions
- Moving expenses if you're a member of the armed services
- Alimony paid if you were divorced before 2019
You'll then be asked if you plan on itemizing your deductions when you file your tax return. Doing so allows you to list out individual expense categories—like charitable donations and home mortgage interest. Alternatively, you can take a flat standard deduction set by the IRS. In 2024, that's $14,600 for single filers; $29,200 for married couples filing jointly. It makes more sense to itemize if you have deductions that add up to more than the standard deduction amount.
6. Estimate Your Tax Credits
Tax credits directly reduce your tax bill. You'll be asked if you qualify for specific tax credits for eligible:
- Parents and guardians
- Workers who earned income outside of the U.S.
- College students
- Retirement savers
- Homeowners
- Elderly or disabled taxpayers
- Business owners
- Owners of energy-efficient vehicles
- Taxpayers who paid alternative minimum tax
7. Submit a New IRS Form W-4 if Necessary
The IRS tax withholding estimator will provide your expected tax withholding and your anticipated tax obligation. That will reveal if you're on track to receive a tax refund—or if you'll likely have a bill when you file your next tax return.
You may choose to update your W-4 accordingly. For example, reducing your withholding will increase your take-home pay, and vice versa. You can simply download and print a new W-4 and submit it to your employer.
The Bottom Line
If you're wondering how to calculate your tax withholding, start with the IRS tax withholding estimator. It will walk you through the process and provide you with a snapshot of your expected tax liability or refund. Getting clear on your tax obligations can prevent a surprise bill when you file your annual tax return.
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