Even though the tax filing deadline for tax year 2025 passed a couple of weeks ago, it’s not too early to start planning for the next filing season. Planning now can help taxpayers avoid surprises next year. One vital action to take is checking for proper tax withholding.
What is withholding?
Taxpayers need to pay their tax as they receive their income, and 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 be the amount self-employed people and others voluntarily set aside to pay their estimated taxes.
How taxpayers can check their withholding
The IRS Tax Withholding Estimator is a free, easy-to-use tool that helps workers and retirees estimate the amount of federal income tax to withhold from their paychecks now for the taxes they will owe next year.
The estimator reflects the changes to credits and deductions under the One, Big, Beautiful Bill (OBBB) enacted on July 4, 2025. This includes:
- Deductions for tips and overtime pay.
- Deductions for car loan interest.
- Enhanced deductions for seniors.
- Updates tied to family-related credits, homeownership, and charitable giving.
What are the benefits of using the IRS Tax Withholding Estimator?
By using the estimator, taxpayers can manage their estimates based on any personal life change, such as buying a home, changing jobs, having a child, or changing their marital status. For people who recently completed their 2025 tax return, the IRS advises using the estimator to consider all income sources, such as full-time wages, side jobs, and any sale of services or goods.
By adjusting tax withholding, taxpayers can:
- Prevent owing money and potential penalties at tax time.
- Adjust withholding to increase take-home pay instead of waiting for a refund.
What else taxpayers need:
- All income statements, including their spouse’s if filing jointly.
- Data from other sources of earnings.
- Their most recent income tax return.
Official IRS Sources
- IRS Tax Withholding Estimator Tool
- Publication 505, Tax Withholding and Estimated Tax
- Tax Withholding Estimator FAQs
- IRS Tax Tips Subscription
CPA Tip
Pay special attention to the new OBBB provisions if you are a senior or work in industries with high overtime/tips. The 2026 W-2 will include professional codes and overtime deduction boxes. Ensuring your employer has the correct information now will save you time during the 2027 filing season.