The purpose of this section is to explain why, when, and how to
check your withholding to see if you will have enough, but not too
much, tax withheld for 2001.
Why Should I Check
You should try to have your withholding match your actual tax
liability. If too little 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
You should check your withholding if there are personal or
financial changes in your life or in the law that might change your
tax liability. See Figure 1.
When Should I Check
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
- You receive a paycheck stub (statement) for a full pay
period in 2001, showing tax withheld based on 2001 tax rates.
- You prepare your 2000 tax return and get a:
- Big refund, or
- Balance due that is:
- More than you can comfortably pay, or
- 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, later.
Caution: You must give your employer a new Form
W-4 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 2001 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 2001
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 2000 and 2001, get
Highlights of 2000 Tax Changes, or visit
the IRS Web Site 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 to project your total
federal income tax liability for 2001.
- Fill out Worksheet 2 to project your total
federal withholding for 2001 and to compare your projected tax to your
- If you are having too little withheld, Worksheet 2
will show you how much more to have withheld from your paycheck each
- 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 Too Little Tax
Is Being Withheld?
If too little 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 having too little tax
- 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, and dividends, or
- You owe other taxes such as self-employment tax or household
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
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 2001 Form W-4.
There is a good chance you are having too much tax
- You got a big refund for 2000 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,
- 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.
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.
Previous | First | Next
Publication Index | 2000 Tax Help Archives | Tax Help Archives | Home