Uh-Oh, You Got a Tax Bill You Didn’t Like—Here’s How to Fix It for Next Year
Surprised by Your Tax Bill? Here’s How to Fix Your Withholding for Next Year
Got a tax bill that made you wince? Or a refund that made you wonder why so much of your money was sitting with the IRS all year? The IRS Withholding Estimator can help you tweak your paycheck withholding or set up estimated tax payments so you’re not caught off guard next tax season. Here’s how to use it to get ahead and avoid penalties.
So, tax season has rolled around, and you just got a result you weren’t thrilled with. Maybe you owed way more than expected and had to scramble to pay the IRS. Or maybe you got a refund that, while nice, made you wonder why so much of your money was sitting in government coffers all year instead of in your pocket. Either way, there’s good news: You can take steps now to avoid the same situation next year.
The IRS Withholding Estimator is one of the best tools available to help you plan ahead, and—shockingly—it actually works pretty well. You can use it to adjust your tax withholding so that your paychecks better reflect your actual tax liability. Below, I’ll walk you through how it works and why it’s worth taking a few minutes to review your tax situation now rather than getting blindsided again next year.
Why This Matters: Avoiding Underpayment Penalties
If you underpaid your taxes last year, you didn’t just end up with an unexpected bill—you might have also triggered an underpayment penalty. The IRS expects you to pay taxes throughout the year, not just in one lump sum at filing time. If you don’t pay enough during the year (either through paycheck withholding or estimated tax payments), they can hit you with extra fees.
Even if you can afford to pay a big lump sum at tax time, why give the government an interest-free loan for months on end? Better to fine-tune your withholding now.
Step 1: Use the IRS Withholding Estimator
The IRS Withholding Estimator is a tool that helps determine how much you’re likely to owe during tax time. It offers guidance as to how to plan for a higher or lower tax bill by adjusting the amount of tax withheld from your paycheck each ensuing period. You can find it here: IRS Tax Withholding Estimator.
To use it effectively, you’ll want to gather a few key details:
Your most recent pay stub(s) (including year-to-date earnings and tax withholding)
Your most recent tax return (to help estimate deductions, credits, and other income sources)
Information on any other income sources (side gigs, investments, self-employment income, etc.)
Step 2: Answer Key Questions
Once you start the tool, it’ll ask you about your filing status (Single, Married Filing Jointly, Head of Household, etc.). If you’re married, it’ll ask about your spouse’s income as well, since that affects your overall tax liability.
Then, it’ll dive into your income sources. You’ll enter details about:
How often you’re paid
Your gross wages per paycheck
How much is being withheld for federal taxes
Any pre-tax deductions (like 401(k) or HSA contributions)
Any bonuses or other expected income this year
It will also ask about other income—things like self-employment earnings, unemployment benefits, or investment income.
Next, you’ll go through adjustments and deductions. This includes:
Student loan interest
HSA contributions
Traditional IRA contributions (separate from employer plans)
Charitable donations (if you itemize deductions)
Finally, you’ll enter tax credits you may qualify for, such as the Child Tax Credit or the American Opportunity Credit for education expenses.
Step 3: Review Your Results
At the end, the tool will give you a projection of your expected total tax liability and compare it to your current withholding. It’ll show whether you’re on track to owe money or receive a refund, and by how much.
If you don’t like the projected outcome, you have options:
Adjust Your Withholding – The tool provides a pre-filled Form W-4 that you can give to your employer’s HR department to tweak how much tax is taken out of your paychecks.
Make Estimated Tax Payments – If you have self-employment income, freelance gigs, or other sources of income that don’t withhold taxes automatically, you may need to make quarterly estimated tax payments to avoid penalties. You can do this through the IRS here: Make an Estimated Tax Payment.
The Estimated Tax Payment Schedule
For self-employed people and others who need to make estimated payments, here’s the schedule:
April 15: Income earned from January 1 to March 31
June 15: Income earned from April 1 to May 31
September 15: Income earned from June 1 to August 31
January 15 (next year): Income earned from September 1 to December 31
(Note: These are not evenly spaced “quarters,” but it’s the IRS’s system, so here we are.)
If you miss these payments, you might get hit with penalties, even if you pay your full tax bill at the end of the year.
Final Thoughts
If you got a tax bill that surprised you—or if you just want to optimize your cash flow throughout the year—it’s worth taking 15 minutes to use the IRS Withholding Estimator. It can help ensure you’re on track to avoid an unpleasant surprise next tax season. And if you’re self-employed or have variable income, making estimated payments on time can save you from IRS penalties.
If you want help running the numbers, I offer one-hour sessions to walk through this with you—visit this page to learn more. Otherwise, use the estimator, adjust your withholding, and set yourself up for a smoother tax season next year.
