Publication 919 (1/2006), How Do I Adjust My Tax Withholding?

Checking Your Withholding

This section explains why, when, and how to check your withholding to see if you will have enough, but not too much, tax withheld for 2006.

Why Should I Check My Withholding?

You should try to have your withholding match your actual tax liability. If not enough tax is withheld, you will owe tax at the end of the year and may have to pay interest and a penalty. If too much tax is withheld, you will lose the use of that money until you get your refund.

You should check your withholding if there are personal or financial changes in your life or changes in the law that might change your tax liability. See Figure 1.

Figure 1. Personal and Financial Factors

You may want to check your withholding after events in your life that are likely to affect your tax liability. Examples are listed below.

Factor	Examples
Lifestyle change	Marriage Divorce Birth or adoption of child Loss of an exemption Purchase of a new home Retirement
Wage income	You or your spouse start or stop working, or start or stop a second job
Increased or decreased income not subject to withholding	Interest income Dividends Capital gains Self-employment income IRA (including Roth IRA) distributions
Increased or decreased adjustments to income	IRA deduction Student loan interest deduction Alimony expense
Increased or decreased itemized deductions or tax credits	Medical expenses Taxes Interest expense Gifts to charity Job expenses Education credit

When Should I Check My Withholding?

The earlier in the year you check your withholding, the easier it is to get the right amount of tax withheld.

You may want to check your withholding when any of the following situations occur.

You receive a paycheck stub (statement) covering a full pay period in 2006, showing tax withheld based on 2006 tax rates.
You prepare your 2005 tax return and get a:
1. Big refund, or
2. Balance due that is:
  1. More than you can comfortably pay, or
  2. Subject to a penalty.
There are changes in your life or financial situation that affect your tax liability. See Figure 1.
There are changes in the tax law that affect your tax liability. See Tax Law Changes, below.

You must give your employer a new Form W-4 to adjust your withholding within 10 days of any event that decreases the number of withholding allowances you can claim, such as your divorce if you are claiming married status.

Tax Law Changes

If there are tax law changes that increase your tax for 2006 and you do not increase your withholding, you may have to pay tax when you file your return. If there are changes that decrease your tax for 2006 and you do not decrease your withholding, you may get a larger refund. You can get this money back earlier by reducing your withholding.

For information about changes in the law for 2005 and 2006, get Publication 553, Highlights of 2005 Tax Changes, or visit the IRS website at www.irs.gov/

How Do I Check My Withholding?

You can use the worksheets and tables in this publication to see if you are having the right amount of tax withheld.

Follow these steps.

Fill out Worksheet 1 (see page 9) to project your total federal income tax liability for 2006.
Fill out Worksheet 2 (see page 12) to project your total federal withholding for 2006 and to compare your projected tax to your projected withholding.

If you are not having enough tax withheld, Worksheet 2 will show you how much more to have withheld each payday.

If you are having more tax withheld than you need to have withheld, Worksheet 2 will refer you to How Do I Decrease My Withholding.

What If Not Enough Tax Is Being Withheld?

If not enough tax will be withheld, you should give your employer a Form W-4 showing either a reduced number of withholding allowances or an additional amount to be withheld from your pay. See How Do I Increase My Withholding, later.

There is a good chance you are not having enough tax withheld if:

You have more than one job at a time,
Your spouse also works,
You have income not subject to withholding, such as capital gains, rental income, interest, dividends, or
You owe other taxes such as self-employment tax or household employment taxes.

If your employer cannot withhold enough additional tax from your pay, you may need to make estimated tax payments. This might be the case if your pay is low and you have substantial nonwage income, such as interest, dividends, capital gains, or earnings from self-employment. For more information on estimated tax, get Publication 505, Tax Withholding and Estimated Tax.

What If Too Much Tax Is Being Withheld?

If too much tax is withheld, you may receive a large refund when you file your return. If you would prefer to receive the money during the year, you may be able to decrease your withholding by giving your employer a new Form W-4.

There is a good chance you are having too much tax withheld if:

You got a big refund for 2005 and your income, adjustments, deductions, and credits will remain about the same this year,
Your income will remain about the same as last year, but your adjustments, deductions, or credits will increase significantly, or
You got a refund last year; your income, adjustments, and deductions will remain about the same as last year; but you will qualify for one or more tax credits this year that you did not qualify for last year.

Note. Adjustments to income are listed on Form 1040 and Form 1040A near the bottom of page 1. Itemized deductions appear on Schedule A (Form 1040). Credits appear on page 2 of Form 1040 and Form 1040A. See also Figures 1 and 2.

Adjusting Your Withholding

This section explains how to adjust your withholding.

If you are not having enough tax withheld or you are having too much tax withheld, you should either increase or decrease your withholding.

How Do I Adjust My Withholding?

You increase or decrease your withholding by filling out a new Form W-4 and giving it to your employer. You can use the worksheets and information in this publication to help you complete Form W-4. You can complete the Form W-4 on pages 6 and 7 and give it to your employer.

How Do I Increase My Withholding?

There are two ways to increase your withholding. You can:

Decrease the number of allowances you claim on Form W-4, line 5, or
Enter an additional amount that you want withheld from each paycheck on Form W-4, line 6.

How to request an additional amount to be withheld. You can request that an additional amount be withheld from each paycheck by following these steps.

Complete Worksheets 1 and 2.
Complete a new Form W-4 if the amount on Worksheet 2, line 5, is more than you want to have to pay or would cause you to pay a penalty when you file your tax return for 2006.
Enter on the new Form W-4, line 5, the same number of withholding allowances your employer now uses for your withholding. This is the number of allowances you entered on the last Form W-4 you gave your employer.
Enter on the new Form W-4, line 6, the amount from Worksheet 2, line 6.
Give your newly completed Form W-4 to your employer.

If you have this additional amount withheld from your pay each payday, you should avoid owing a large amount at the end of the year.

Example.

Using Worksheets 1 and 2, Steve figures that his 2006 tax liability will be $5,000 and that his withholding for the year will be $4,700. Steve's tax will be underwithheld by $300 ($5,000 - $4,700). He will have to pay this amount when he files his 2006 tax return or he can increase his withholding. Steve gets a new Form W-4 from his employer, who tells him that there are 50 paydays remaining in the year. Steve completes the form as before, and enters the same number of withholding allowances as before, then enters $6 ($300 ÷ 50) on line 6 of the form. This is the additional amount to be withheld from his pay each payday. He gives the completed form to his employer.

What if I have more than one job or my spouse also has a job? You are likely to need to increase your withholding if you have more than one job (or if you are married filing jointly and your spouse also works). If this is the case, you can increase your withholding for one or more of the jobs.

You can apply the amount on Worksheet 2, line 5, to only one job or divide it between the jobs any way you wish. For each job, determine the extra amount that you want to apply to that job and divide that amount by the number of paydays remaining in 2006 for that job. This will give you the additional amount to enter on the Form W-4, line 6, you will file for that job. You need to file a Form W-4 for each job for which you are changing your withholding.

Example.

Meg Green works in a store. Her husband, John, works full time in manufacturing. They file a joint income tax return. When they fill out Worksheets 1 and 2, Worksheet 2, line 5, shows that they will not have enough tax withheld. They can divide the amount on Worksheet 2, line 6, any way they want. They can enter an additional amount on either of their Forms W-4, or divide it between them. They decide to have all of the additional amount from line 6 withheld from John's wages, so they enter on his Form W-4, line 6, the number from their completed Worksheet 2, line 6. Both claim the same number of allowances as before.

How Do I Decrease My Withholding?

If you expect to have more tax withheld than your projected tax liability for 2006, you may be able to decrease your withholding by increasing the number of allowances that you claim on Form W-4.

You can claim only the number of allowances to which you are entitled. To see if you can decrease your withholding by increasing your allowances, see the Form W-4 instructions and the rest of this publication.

How do I increase the number of allowances I can claim? You figure and increase the number of withholding allowances you are entitled to claim as follows.

Complete Worksheets 1 and 2.
If your projected withholding is significantly more than your projected tax, get a new Form W-4 (or use the one on pages 6 and 7).
Complete the Personal Allowances Worksheet on Form W-4.
Use the remainder of the worksheets in this publication, as applicable.
Complete the Deductions and Adjustments Worksheet on Form W-4 if you plan to itemize deductions, claim adjustments to income, or claim tax credits from Worksheet 7 (see page 16) on your 2006 return.
Complete the Two-Earner/Two-Job Worksheet on Form W-4 if you meet the criteria on line H of the Form W-4 Personal Allowances Worksheet.
Fill out Form W-4.
Enter the number of allowances you are entitled to claim on Form W-4, line 5.
If the number of allowances you are entitled to claim is different from the number you are already claiming, give the newly completed Form W-4 to your employer.

What if I can claim tax credits? Figure 2 shows tax credits you may be able to use to reduce your withholding. The Form W-4 Personal Allowances Worksheet only provides rough adjustments for the child and dependent care credit (line F) and the child tax credit (line G). Complete Worksheet 7 to figure these credits more accurately and also take other credits into account.

Include the amount from Worksheet 7, line 12, in the total on line 5 of the Deductions and Adjustments Worksheet. Then complete the Deductions and Adjustments Worksheet and the rest of Form W-4.

If you take the child and dependent care credit into account on Worksheet 7, enter -0- on line F of the Personal Allowances Worksheet. If you take the child tax credit into account on Worksheet 7, enter -0- on line G of the Personal Allowances Worksheet.

Example.

Brett and Alyssa are married and expect to file a joint return for 2006. Their combined estimated wages are $68,000. Their projected tax credits include a child and dependent care credit of $960 and a mortgage interest credit of $1,700.

They use Worksheet 7 to see whether they can convert their tax credits into additional allowances.

They enter their expected child and dependent care credit, $960, on Worksheet 7, line 1.
They enter their expected mortgage interest credit, $1,700, on Worksheet 7, line 8.
They add these credits and enter the total, $2,660, on line 10.
Because they are married filing a joint return, they use the table for married filing jointly or qualifying widow(er).
They see that their combined estimated wages, $68,000, falls between $36,001 and $82,000, and that the number to the right of this range is 6.7.
They enter 6.7 on line 11.
They multiply line 10 by line 11 and enter the result, $17,822, on line 12.
They take the result on line 12 and add it to their other adjustments on line 5 of the Form W-4 Deductions and Adjustments Worksheet.
They finish filling out the Deductions and Adjustments Worksheet.
Because they chose to account for their child and dependent care credit this way, they enter -0- on line F of the Personal Allowances Worksheet.

When Will My New Form W-4 Go Into Effect?

If the change is for the current year, your employer must put your new Form W-4 into effect no later than the start of the first payroll period ending on or after the 30th day after the day on which you give your employer your revised Form W-4.

If the change is for next year, your new Form W-4 will not take effect until next year.

Figure 2. Tax Credits

For more information about the ...	See ...
Adoption credit	Form 8839 Instructions
Alternative fuel vehicle refueling property credit	Form 8911 Instructions
Alternative motor vehicle credit	Form 8910 Instructions
Child and dependent care expenses, credit for	Publication 503, Child and Dependent Care Expenses
Child tax credit (including additional child tax credit)	Instructions for Form 1040 or Form 1040A
Clean renewable energy bond credit	Form 8912 Instructions
District of Columbia first-time homebuyer credit carryforward	Form 8859 Instructions
Earned income credit (unless you requested advance payment of the credit)	Publication 596, Earned Income Credit
Education credits	Publication 970, Tax Benefits for Education
Elderly or the disabled, credit for the	Publication 524, Credit for the Elderly or the Disabled
Foreign tax credit (except any credit that applies to wages not subject to U.S. income tax withholding because they are subject to income tax withholding by a foreign country)	Publication 514, Foreign Tax Credit for Individuals
General business credit	Form 3800, General Business Credit
Health coverage tax credit	Publication 502, Medical and Dental Expenses
Mortgage interest credit	Publication 530, Tax Information for First-Time Homeowners
Prior year minimum tax, credit for (if you paid alternative minimum tax in an earlier year)	Form 8801 Instructions
Qualified electric vehicle credit	Form 8834 Instructions
Qualified zone academy bond credit	Form 8860 Instructions
Residential energy credits	Publication 553, Highlights of 2005 Tax Changes
Retirement savings contributions credit	Publication 590, Individual Retirement Arrangements (IRAs)

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Blank Form W–4 page 1Form:Form: W–4

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blank Form W–4 page 2

Figure 3. Worksheets and Tables

Use the following worksheets and tables to figure your correct withholding and adjustments.

Use ...	To ...
Worksheet 1. Projected Tax for 2006	Project the taxable income you will have for 2006 and figure the amount of tax you will have to pay on that income.
Worksheets 1a, 1b, 1c, and 1d. Tax Rate Schedule Worksheets for 2006	Figure the amount of tax on your projected taxable income.
Worksheet 2. Projected Withholding for 2006	Project the amount of federal income tax that you will have withheld in 2006, compare your projected withholding with your projected tax, and determine whether the amount withheld each payday should be adjusted.
Worksheet 3. Itemized Deductions Limit	Figure the reduced amount of your projected itemized deductions on Schedule A (Form 1040) if they are limited because your projected adjusted gross income is more than $150,500 ($75,250 if married filing separately).
Worksheet 4. Reduction of Exemption Amount	Figure the reduced value of your projected exemptions if your exemptions are limited because your projected adjusted gross income for your projected filing status is more than: $150,500 if single; $225,750 if married filing jointly or qualifying widow(er); $112,875 if married filing separately; or $188,150 if head of household.
Worksheet 5. Figuring Tax If You Expect To Have Capital Gains or Qualified Dividends	Figure the amount of tax when your projected 2006 taxable income includes capital gains or qualified dividends.
Worksheet 6. Self-Employment Tax	Figure your projected self-employment tax for 2006 if you and/or your spouse are self-employed in 2006 and your own wages and self-employment income for 2006 will be more than $94,200, or your spouse's wages and self-employment income will be more than $94,200.
Worksheet 7. Converting Credits to Withholding Allowances	Figure how much of an adjustment to make to line 5 of the Deductions and Adjustments Worksheet on Form W-4 to account for your projected tax credits that are not otherwise taken into consideration.
Tables 1, 2, and 3. 2006 Standard Deduction Tables	Determine your projected standard deduction for 2006. Do not use these tables if you plan to itemize your deductions.

Worksheet 1. Projected Tax for 2006

Use this worksheet to figure the amount of your projected tax for 2006. (Note. Enter combined amounts if married filing jointly.)
	1.	Enter amount of adjusted gross income (AGI) you expect in 2006. (To determine this, you may want to start with the AGI on your last year's return, and add or subtract your expected changes.)		1
	2.	If you:
		• Do not plan to itemize deductions on Schedule A (Form 1040), enter the standard deduction you expect from Table 1, 2, or 3.
		• Plan to itemize deductions, and the amount on line 1 is:
			• Not more than $150,500 ($75,250 if married filing separately), enter the total itemized deductions you expect after applying any limits (such as the 7.5% limit on medical expenses).
			• More than $150,500 ($75,250 if married filing separately), use Worksheet 3 to figure the amount to enter here	2
	3.	Subtract line 2 from line 1 (if zero or less, enter -0-)		3
	4.	If the amount on line 1 is:
		• Not more than the amount shown below for your 2006 filing status, multiply the number of exemptions you plan to claim on your 2006 tax return by $3,300 and enter the result here.
		• More than the amount shown below for your 2006 filing status, use Worksheet 4 to figure the amount to enter here		4
			• Single — $150,500
			• Married filing jointly or Qualifying widow(er) — $225,750
			• Married filing separately — $112,875
			• Head of household — $188,150

	5.	Subtract line 4 from line 3 (if zero or less, enter -0-)		5
	6.	If the amount on line 1:
			• Does not include capital gains or qualified dividends, use Worksheet 1a, 1b, 1c, or 1d, as appropriate, to figure the tax to enter here.
			• Includes capital gains or qualified dividends, use Worksheet 5 to figure the tax to enter here	6
	7.	Enter any expected additional taxes from an election to report your child's interest and dividends (Form 8814), and from lump-sum distributions (Form 4972)		7
	8.	Add lines 6 and 7		8
	9.	Enter the amount of any expected tax credits. See Figure 2, earlier		9
	10.	Subtract line 9 from line 8 (if zero or less, enter -0-)		10
	11.	Self-employment tax. If you expect to file a joint return, figure the self-employment tax for each of you separately and enter the total on line 11. If the projected total of your net self-employment income multiplied by 92.35% (.9235), plus your wage income, is:
			• $400 or more, but no more than $94,200, multiply your expected net self-employment income by 92.35% (.9235), multiply that result by 15.3% (.153), and enter here.
			• More than $94,200, use Worksheet 6 to figure the amount to enter here	11
	12.	Enter any other expected taxes (such as tax on early distributions from an IRA, alternative minimum tax, etc.)		12
	13.	Add lines 10 through 12. This is your projected tax for 2006. Enter it here and on Worksheet 2, line 1		13

Worksheets 1a, 1b, 1c, and 1d—Tax Rate Schedule Worksheets for 2006

Worksheet 1a. For Single Filing Status

If you expect your filing status for 2006 to be single, use this worksheet to figure the amount to enter: • On Worksheet 1, line 6, if there are no capital gains or qualified dividends included in the total on Worksheet 1, line 1, or • On Worksheet 5, lines 28 and 30, if there are capital gains or qualified dividends included on Worksheet 1, line 1.
1.	Enter the amount from Worksheet 1, line 5, or if figuring the amount to enter on Worksheet 5, lines 28 and 30, enter the amount from Worksheet 5, line 1 or 14, as appropriate			1
2.	Enter whichever of the amounts in column A below is closer to, but not more than, the amount you entered on line 1 above			2
	Column A	Column B	Column C
	$ 0	10% (.10)	$ 0.00
	7,550	15% (.15)	755.00
	30,650	25% (.25)	4,220.00
	74,200	28% (.28)	15,107.50
	154,800	33% (.33)	37,675.50
	336,550	35% (.35)	97,653.00

3.	Subtract line 2 from line 1			3
4.	Enter the percentage from column B above that corresponds to the amount from column A that you entered on line 2			4	.
5.	Multiply line 3 by line 4			5
6.	Enter the amount from column C above that corresponds to the amount from column A that you entered on line 2			6
7.	Add lines 5 and 6 and enter the result here and on Worksheet 1, line 6, or on Worksheet 5, line 28 or 30, whichever is appropriate			7

Worksheet 1b. For Head of Household Filing Status

If you expect your filing status for 2006 to be head of household, use this worksheet to figure the amount to enter: • On Worksheet 1, line 6, if there are no capital gains or qualified dividends included in the total on Worksheet 1, line 1, or • On Worksheet 5, lines 28 and 30, if there are capital gains or qualified dividends included on Worksheet 1, line 1.
1.	Enter the amount from Worksheet 1, line 5, or if figuring the amount to enter on Worksheet 5, lines 28 and 30, enter the amount from Worksheet 5, line 1 or 14, as appropriate			1
2.	Enter whichever of the amounts in column A below is closer to, but not more than, the amount you entered on line 1 above			2
	Column A	Column B	Column C
	$ 0	10% (.10)	$ 0.00
	10,750	15% (.15)	1,075.00
	41,050	25% (.25)	5,620.00
	106,000	28% (.28)	21,857.50

Publication 919 - Main Contents

Purpose of This Publication

Checking Your Withholding

Why Should I Check My Withholding?

When Should I Check My Withholding?

Tax Law Changes

How Do I Check My Withholding?

What If Not Enough Tax Is Being Withheld?

What If Too Much Tax Is Being Withheld?

Adjusting Your Withholding

How Do I Adjust My Withholding?

How Do I Increase My Withholding?

How Do I Decrease My Withholding?

When Will My New Form W-4 Go Into Effect?

Worksheet 1. Projected Tax for 2006