Tax Withholding Estimator FAQs

Please refer to 2020 Form W-4 FAQs if you have questions regarding the changes in the new 2020 Form W-4 compared to the 2019 Form W-4.

About You Page

Rental income can be entered in the unearned income box on Step 2 once you select the corresponding box under Other Sources of Income on Step 1. Please ensure that this rental income is only personal rental income and not business related.

The application is designed to assist taxpayers adjust withholding on their regularly withheld income and limited to taxpayers with jobs or pensions that have regular federal income tax withholding.

Yes, the application is designed to account for jobs or pensions that haven’t started yet in order to estimate your anticipated tax obligation and your overall results. Please select "No" to the question “Do you expect to hold this job the entire year (Jan. 1 through Dec. 31)?” and then you will be able to select the dates you expect to hold this job.

For income such as dividends, interest, distributions from an IRA (not Roth IRAs), 401(k) or a trust, or other form of specialized income:

Select the checkbox that reads “Had withholding or made estimated payments for income such as dividends, interest, distributions from an IRA (not Roth IRAs), 401(k) or a trust, or other form of specialized income” on Step 1 and then enter the estimated tax payments in the input box on Step 2. Use this to account for estimated payments that have already been paid.

For self-employment income:

If you selected Self-Employment Income on Step 1, there will be a prompt on Step 2 under Self-Employment Income field to enter “Estimated federal income tax you paid toward self-employment income.” Use this to account for estimated payments that have already been paid.

Select the checkbox that reads “Receive unearned income such as dividends, interest, annuities, alimony, or a distribution from an IRA (not Roth IRAs), 401(k) or a trust” on Step 1 and then enter the amount for IRA distributions in the input box on Step 2.

You can enter an estimate of capital gains by checking the box on Step 1 that says “Receive unearned income such as dividends, interest, annuities, alimony, or a distribution from an IRA (not Roth IRAs), 401(k) or a trust.” You will then be given an opportunity on Step 2 to enter the amount you expect. Note, however, that the Tax Withholding Estimator does not currently take into account any lower tax rates that your capital gains may benefit from, but it will ensure that enough tax is withheld to more than cover that income.

Income and Withholding Page

Depending on your situation, there are a few inputs for this question.

  • For a past job, we will ask for federal income tax withheld year-to-date.
  • For current jobs, we will ask for federal income tax withheld per pay period and year-to-date. The per pay period input refers to federal income tax withheld per paycheck.
  • If you’re filling this out in January and your most recent pay period ended in December of the previous year, then please input the federal income tax withheld per pay period in the last paycheck input.

The application is designed to handle withholding on a bonus. For a bonus not yet received, enter the amount in the “any bonuses you expect to receive later this year” field. Then, you may select a checkbox right under that field if you know that your employer will withhold tax on the bonus for you.

Select Social Security Income checkbox on Step 1, then enter the amount in Step 2.

The pay period end date should be on your pay statement when the employer processes your pay for that period. For example, the pay period end date could be Friday, January 17, but the paycheck for that period might not be received until the Monday of January 27. In this case, you would use Friday, January 17 as your input to that question.

The Estimator does not currently accommodate RMDs.

Adjustments

Enter these amounts in Step 3 (Adjustments) in the field Deduction for contributions to an IRA outside of deductions included in payroll deductions.

Enter these amounts in Step 3 (Adjustments) in the field Penalty for Early Withdrawal of Savings.

 Deductions

In the Gifts to Charity field on Step 4 (Deductions).

You may include the total estimated amount you pay for health insurance premiums, not including any amount your employer pays, in the Medical and Dental expenses field under Deductions.

Tax Credits

You should indicate on Step 5 (Credits) how many of your dependents are qualifying children. If you don’t have any qualifying children, the Estimator will automatically determine the amount of EITC for which you are eligible.

 Results Page

We recommend you check your inputs for federal income tax withheld on Step 2. Common mistakes made on this page can greatly impact the amounts reflected in results:

  • Double-check to make sure the “Year to date” field includes the total federal income tax withheld and the “Per Pay Period” field includes only what was withheld for that pay period.
  • Ensure you are referencing your most recent 2020 paystub and not one from a previous year.
  • Double-check the income you have entered. If your job is for a partial year and not the full year, please make sure to adjust your income accordingly.

For jobs/pensions that you currently hold: The expected tax withholding is projected by multiplying the anticipated number of remaining pay periods you have for the year with the amount withheld per pay period and adding it to the withholding to date. The tool adds any estimated tax payments made or any other taxes paid for other sources of income in the expected tax withholding calculation to determine the total amount expected to be paid for the year.

For jobs/pensions that have not started yet: The application uses the standard withholding amount based on your filing status and estimated income. You can request deviations from the standard withholding on a Form W-4, and the tool will instruct you how to make those adjustments.

The Tax Withholding Estimator uses your filing status, income, adjustments, deductions, and credits to estimate your anticipated tax obligation. Your actual tax obligation may differ from this if the amounts you entered are incorrect or if your situation involves tax requirements or benefits not included in this application.

Your estimated under payment/over payment is the difference between your anticipated tax obligation and your expected tax withholding (which includes your estimated tax payments). Your expected tax withholding is the amount of federal income tax we project you will have withheld this year if you do not change your current withholding arrangement.

Withholding for these types of income differs from standard withholding and the estimator doesn’t currently have the ability to provide these sorts of recommendations. If you’d like to make changes to your withholding amounts for Social Security benefits or unemployment compensation, please use the Form W-4V (PDF). However, you may choose to have tax withheld from your wages to cover the tax on your Social Security benefits and unemployment income.  If you enter those types of income into the Tax Withholding Estimator, its recommendation will account for them in your wage withholding.

The tool is intended to help you complete Form W-4 to adjust the amount of federal income tax to have withheld from your wages.  Form W-4 does not address FICA or Medicare.  Therefore, the tool does not include or ask for FICA or Medicare tax withholding in most situations. However, the tool does take into account additional Medicare tax, which some people with high incomes must pay with their tax return. To learn more about additional Medicare Tax, please read additional Medicare Tax FAQs.

Withholding Recommendations

Form W-4 is used to adjust an employee’s income tax withholding up or down relative to the basic amount, given the employee’s filing status and wage amount.  Prior to 2020, employees could decrease withholding by claiming an appropriate number of allowances, and they could increase withholding by entering a specific additional amount to withhold from each paycheck.  Those were the only two possible entries, and employees generally used either one or the other (since those two lines worked in opposite directions).  The Tax Cuts and Jobs Act of 2017 eliminated personal and dependent exemptions, and because withholding allowances were equated with exemptions, it was best to move away from using withholding allowances.  So, beginning in 2020, Form W-4 offers employees four ways to change their withholding:  line 3 to reduce the amount of tax withheld; line 4(c) to increase the amount of tax withheld; line 4(a) to increase the amount of income subject to withholding; and line 4(b) to decrease the amount of income subject to withholding.  These four possibilities are all related and could be reduced to one net figure.  For example, lines 4(a) and 4(b) work in opposite directions, so the amounts could be combined into one net amount of additional income or reduction to income.  Similarly, lines 3 and 4(c) could be combined into one net amount by which to increase or decrease the amount of tax to withhold.  Moreover, the net amount of income adjustment from lines 4(a) and 4(b) could be translated into the corresponding amount of tax adjustment (depending on the employee’s tax bracket, etc.) then combined with the net amount from lines 3 and 4(c) to determine the bottom-line amount by which to increase or decrease withholding—just one number.  That’s exactly what the Tax Withholding Estimator does, but these four lines are left separate on the paper Form W-4 so that employees don’t have to do the math to get the bottom line (i.e., how much to increase or decrease withholding).  That is left to the payroll system.  However, as the Form W-4 instructions indicate, many employees may find it advantageous for the online tool to do the math so that they don’t have to reveal as much about their family or finances to their employer.

That’s the most common need for line 3, but the Form W-4 instructions make it clear that line 3 can be used for any kind of credit.  Tax credits reduce your tax obligation dollar-for-dollar, so entering an amount on line 3 will reduce your withholding by that amount over the course of a year. Line 3 can also be used to reduce your withholding when you have had too much withheld already this year.  In fact, the Tax Withholding Estimator also uses line 3 to account for all deductions and adjustments to income that would otherwise be accounted for on Line 4(b).  This allows you to limit the amount of information you need to provide your employer on Form W-4, protecting your privacy.

The TWE uses line 3 to reduce your withholding when you are having too much withheld.  It determines the annualized amount to put on line 3 that will result in your preferred refund amount.

You may enter multiples of $500 up to the amount recommended by the estimator.  For example, if the estimator recommends that you enter $1,650 on line 3 of your W-4, then simply enter $1,500 into your payroll system; this is $150 less than the recommendation, so your expected refund will likely be around $150 larger than the preference you entered into the TWE.

If someone doesn’t submit any Form W-4 to their employer, the employer withholds a “baseline” amount from each paycheck.  Submitting a W-4 to your employer indicates how to deviate from that baseline amount of withholding in order to achieve your desired refund amount.  In your case, you will need a total of $X withheld from each paycheck for the balance of the year, which is $Y less than your current tax withholding. This means that your previous W-4 must have requested an additional amount to withhold from each paycheck (over and above the baseline) that was larger than $Z. So, reducing this amount to $Z will reduce your withholding and help you achieve the refund amount you prefer.

The recommendations are based on the following steps:

  1. Determine the amount of tax you want withheld this year, which is the sum of your anticipated tax obligation and the amount of refund you prefer (if any).
  2. Subtract the amount of tax you have already had withheld this year (including an estimate of how much more will be withheld before you’re able to submit a new Form W-4).
  3. Subtract the amount you would have withheld from now to the end of the year if you had the baseline amount of tax withheld during that time (this is the amount that your employer would withhold, given your filing status and wage amount, if you left W-4 lines 2 through 4 blank).
  4. If the result is positive, you need more than the baseline amount withheld for the balance of the year, so the Estimator converts the result to an amount per pay period and recommends that you enter that on line 4(c).

    If the result is negative, you need less than the baseline amount withheld for the balance of the year, so the Estimator recommends that you enter the annualized version of that on line 3.

The slider range is determined by both your income and the amount of federal income taxes you currently have withheld in order to create achievable options based on these two factors.

The pre-filled Form W-4 does not include any of your personally identifiable information since the tool does not ask for this information.  It pre-fills either line 3 (to reduce your withholding) or line 4(c) (to increase your withholding).  See Why does the tool recommend only one amount to enter on Form W-4? above for more information.

 

Tax Withholding Estimator