Many taxpayers are surprised — and frustrated — to discover they owe money when they file their tax return, even though federal and state income taxes were withheld from every paycheck throughout the year.
In most cases, the issue is not the tax rate, but how your Form W-4 is completed.
Your employer withholds federal and state income taxes based on the information you provide on Form W-4. Since 2020, the W-4 no longer uses “allowances.” Instead, withholding is calculated based on:
If the information on your W-4 does not reflect your actual tax situation, the amount withheld during the year may be too low, resulting in a balance due when you file your return.
You may owe taxes at year-end if:
Form W-4 allows you to request an extra dollar amount to be withheld from each paycheck. This option appears as:
“Additional amount, if any, you want withheld from each paycheck.”
By adding an appropriate extra withholding amount, you can spread your tax payments evenly throughout the year and significantly reduce — or eliminate — a balance due at filing time. In many cases, this also results in a refund.
State withholding works similarly. For New York residents, the equivalent form is Form IT-2104, which also allows for additional withholding to better align payments with your actual tax liability.
Updating your W-4 does not change your total tax liability. It only affects when you pay the tax — gradually throughout the year or in a lump sum at filing time.
In the end, the choice is simple:
Would you rather owe the IRS and the state, or receive a refund?
Reviewing and updating your W-4 proactively can help you stay in control and avoid unpleasant surprises at tax time.
