W-4 and withholding explained

What withholding is, and is not

Withholding is a prepayment. Your employer takes federal income tax out of every paycheck and sends it to the IRS for you. When you file your return, the IRS compares what you paid in with what you owe: if you paid more, you get a refund; if you paid less, you pay the rest.

If too little is withheld you will generally owe tax when you file, and you may owe a penalty. If too much is withheld, you are due a refund (IRS). A large refund is not extra income: it is your own money, returned after the government had the use of it.

The steps of Form W-4

Only Step 1 and your signature are needed: your name, Social Security number and filing status. Employers use the filing status to pick the right tax table. Steps 2 to 4 are for you to complete only if they apply.

• Step 2, if you have two jobs or you and your spouse both work. Without it, each job is withheld as if it were your only one, which usually means too little in total. You can use the estimator, the Multiple Jobs Worksheet, or, with only two jobs in total, check the box.
• Step 3, credits. Multiply the number of qualifying children under 17 by $2,200 and other dependents by $500. It applies if your total income is $200,000 or less ($400,000 if married filing jointly). Fill in Steps 3 to 4(b) on only one job’s W-4, the highest paying.
• Step 4(a), other income without withholding, such as interest or dividends; 4(b), deductions beyond the standard deduction; 4(c), an extra amount to withhold from each paycheck.

How your employer works out the amount

Payroll software follows IRS Publication 15-T. It multiplies your paycheck by the number of pay periods, adds your Step 4(a) income, and subtracts your Step 4(b) deductions plus $8,600 ($12,900 if married filing jointly). It then looks up the tax in a table, subtracts your Step 3 credits and divides by the pay periods.

For a single filer on $60,000 paid every two weeks with only Step 1 filled in, the table gives $5,020 a year, which is $193.08 per paycheck. That is the same as the tax on the pay after the $16,100 standard deduction. The calculator on this site follows the same tables.

Checking the Step 2 box makes the tables withhold more: the same pay gives $8,785 a year. Two children in Step 3 take $4,400 off the year, leaving $23.85 per paycheck.

When to check or change your W-4

The IRS says to check your withholding every January, and after a new job or other paid work, a major change in income, marriage, divorce or separation, a birth or adoption, or a home purchase. The Tax Withholding Estimator takes about 25 minutes and needs your latest pay stubs. It does not ask for your name or Social Security number.

You can give your employer a new W-4 whenever your situation changes. A change made late in the year has fewer paychecks left to make up the difference.

New deductions and exemption

The 2026 form’s Deductions Worksheet lets you count the new deductions for qualified tips (up to $25,000), qualified overtime (up to $12,500, or $25,000 jointly), car loan interest (up to $10,000) and a $6,000 deduction for each person age 65 or older, each with income limits. Entering them in Step 4(b) lowers your withholding.

You can claim exemption from withholding for 2026 only if you had no federal income tax liability in 2025 and expect none in 2026. You then need to submit a new W-4 by February 16, 2027.

Avoiding the penalty

You generally avoid the underpayment penalty if you owe less than $1,000 after subtracting withholding and credits, or if you paid at least 90% of this year’s tax or 100% of last year’s, whichever is smaller. There are special rules for higher-income taxpayers (IRS).