Helping clients navigate the updated Form W-4

For many taxpayers, withholding is an afterthought until filing season arrives. A large balance due or an unexpectedly small refund often leads to the same question: Why wasn't enough tax withheld? As tax professionals know, the answer frequently starts with Form W-4, Employee's Withholding Certificate.

Recent tax law changes have made withholding decisions more important than ever. New deductions and credits, updated withholding methods and revisions to Form W-4 for 2026 mean employees may need to revisit their withholding elections to avoid surprises. 

Review withholding 

Many employees complete a Form W-4 when they start a job and never think about it again. However, withholding elections aren’t intended to remain static throughout a taxpayer's career.

Changes in income, family circumstances and tax law can all affect whether the correct amount of tax is being withheld. A withholding election that worked well a few years ago may no longer produce accurate results today. As a result, tax professionals should encourage clients to periodically review their withholding and determine whether adjustments are necessary.

New deductions create new planning opportunities

Recent legislation introduced several provisions that could significantly affect taxable income for certain employees. New deductions for qualified tips, overtime compensation and passenger vehicle loan interest may reduce tax liability for eligible taxpayers. In addition, an enhanced deduction for qualifying seniors may create additional withholding considerations.

While these provisions may ultimately lower a taxpayer's federal income tax bill, withholding systems cannot automatically account for every employee's circumstances. 

For example, a client who regularly earns overtime pay may qualify for a deduction that reduces taxable income. If withholding is not adjusted, that client could have more tax withheld than necessary throughout the year. On the other hand, taxpayers who misunderstand a deduction’s eligibility requirements may discover at filing that too little tax was withheld.

Understanding the updated Form W-4

Although Form W-4 remains the primary tool for determining federal income tax withholding, many employees find the form confusing. Questions often arise about multiple jobs, dependents, deductions and additional withholding elections.

Particular attention should be paid to the new exemption-from-withholding checkbox and the circumstances under which it may be appropriate. Employees who incorrectly claim exemption could have too little tax withheld by year-end.

Multiple jobs often complicate withholding

One of the most common causes of withholding problems involves employees who work more than one job or households in which both spouses earn wages.

When multiple sources of wage income are involved, withholding calculations can become less accurate if each employer only considers the wages paid by that employer. As income increases, taxpayers may move into higher tax brackets, creating a potential shortfall in withholding.

Consider a married couple where both spouses work full time. If each spouse completes a Form W-4 without accounting for the other spouse's wages, the household may not have enough tax withheld during the year. Addressing the issue early can help prevent an unexpected balance due when the return is filed.

The Multiple Jobs Worksheet can help employees address these situations, but determining whether the worksheet is appropriate requires careful consideration of the taxpayer's overall circumstances.

Worksheets or the IRS Tax Withholding Estimator?

One question practitioners frequently encounter is whether a client should use the worksheets included with Form W-4 or rely on the IRS Tax Withholding Estimator.

For relatively straightforward situations, the Multiple Jobs Worksheet or Deductions Worksheet may provide sufficient guidance. However, taxpayers with multiple jobs, significant deductions, variable income or more complex financial situations may benefit from using the IRS Tax Withholding Estimator.

The estimator can provide a more customized analysis by incorporating a broader range of information. This allows employees to make withholding decisions that more closely reflect their expected tax liability.

Proactive withholding reviews benefit everyone

Whether a client recently changed jobs, began earning tip income, qualifies for new deductions or simply wants to improve withholding accuracy, a Form W-4 review can be an important planning opportunity. These conversations often uncover issues that would otherwise remain hidden until return preparation begins.

Understanding how recent law changes and the updated Form W-4 affect federal withholding is essential for helping clients avoid surprises at filing time. Register for NATP's Assisting Clients with the Updated Form W-4 webinar to learn when clients should update withholding elections and how to address common withholding challenges involving multiple jobs and complex tax situations.