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PD Blog

Why You Need to Double-Check Your W-4 Withholding

Matthew Frye-Castillo

If you've ever been hit with a surprise tax bill or a much smaller refund than expected, your W-4 form might be to blame. The W-4 tells your employer how much federal income tax to withhold from your paycheck, and if it's outdated or inaccurate, you could be setting yourself up for financial headaches.

But here’s the bigger picture: being proactive about your W-4 isn’t just good for your wallet — it’s a smart move for your professional life. Financial stability and attention to detail are core traits of successful professionals. When you manage your finances well, you reduce stress, avoid costly distractions, and project competence — whether you're applying for a mortgage, launching a business, or negotiating your next raise.

Here are three major reasons to review your W-4 today:

  1. Missed Refunds: Neglecting to file a tax return, possibly due to incorrect or missing W-4 information, can lead to unclaimed refunds. The IRS reported that over 1.1 million individuals failed to file their 2021 tax returns, leaving more than $1 billion in refunds unclaimed. This underscores the importance of accurate withholding and timely filing to ensure you receive any refunds due.

  2. Underpayment Penalties: If you don't withhold enough tax throughout the year, you may face a penalty for underpayment. The IRS states that you can avoid this penalty if you owe less than $1,000 after subtracting your withholding and refundable credits, or if you paid withholding and estimated tax of at least 90% of the tax for the current year or 100% of the tax shown on the return for the prior year, whichever is smaller. Failing to meet these criteria can result in penalties and interest charges.​

  3. Failure to Pay Penalties: If your W-4 doesn't reflect additional income sources or life changes, you might underpay your taxes throughout the year. This can lead to penalties and interest on the amount owed when you file your return. The IRS calculates the failure to pay penalty as 0.5% of the unpaid taxes for each month or part of a month the tax remains unpaid, up to a maximum of 25% of your unpaid taxes.

Want to set yourself apart professionally? Start by taking ownership of your finances.

Use the IRS Tax Withholding Estimator to make sure your W-4 reflects your current situation. It’s quick, free, and a sign you’re in control — not just of your paycheck, but of your future.

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