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Amy Fontinelle has more than 15 years of experience covering personal finance, corporate finance and investing.
Updated August 09, 2024 Reviewed by Reviewed by Lea D. UraduLea Uradu, J.D. is a Maryland State Registered Tax Preparer, State Certified Notary Public, Certified VITA Tax Preparer, IRS Annual Filing Season Program Participant, and Tax Writer.
Fact checked by Fact checked by Ariel CourageAriel Courage is an experienced editor, researcher, and former fact-checker. She has performed editing and fact-checking work for several leading finance publications, including The Motley Fool and Passport to Wall Street.
Part of the Series Federal Income Tax GuideTax Credits and Deductions
Retirement and Your Taxes
It is possible to owe nothing on your federal tax return if you handle your withholding strategically. The W-4 form that you fill out for your employer when you start a new job determines how much income tax will be withheld from your paycheck. This ultimately decides how much tax you will either owe or get back as a refund when you file your taxes.
Submitting a W-4 is not a one-time event. You can submit a revised W-4 form to your employer whenever you want. Managing how much your employer withholds through your W-4 form will give you a better shot at owing no taxes come April. Taxpayers who withhold too little could face a large tax bill when they file. You also should avoid having too much withheld, which is the equivalent of giving the government an interest-free loan all year instead of putting that money to work for you.
Here’s how to get your tax bill closer to zero before tax time arrives.
If you’re a salaried employee with a steady job, it’s relatively easy to calculate your tax liability for the year. You can predict what your total income will be.
However, millions of Americans aren't salaried employees. Other types of income include:
If you don't have the consistent income of a salaried employee, you’ll need to make an educated guess based on your earnings history and how your year has gone so far.
Once you have a number that represents your total (gross) pay for the year, there are several ways to estimate your tax liability.
There are a number of free paycheck and income tax calculators online. You will need to enter your:
The calculator will then tell you your federal tax liability per paycheck or per year.
This method is easy, and the result will be reasonably accurate. However, it likely will not be perfect since it doesn't account for other factors that can impact your actual tax liability, such as whether you itemize deductions and which tax credits you claim.
The tax withholding estimator on the Internal Revenue Service (IRS) website is useful for people with more complex tax situations. This tool is more time-consuming than a simple calculator, but also more accurate.
It will ask about additional factors such as:
Based on your answers, it will tell you your estimated tax obligation for the year, how much you will have paid through withholding by year’s end, and your expected overpayment or underpayment.
Another option is to complete a sample tax return for the year by either using tax software or downloading the forms you need from the IRS website and filling them out by hand. This method should give you the most accurate picture of your annual tax liability, but it will also take the most time.
If you’re using last year’s tax software or IRS forms, make sure that there haven’t been significant changes to the rules or the tax rates that would affect your situation.
The IRS is launching Direct File, which will allow individuals to file their tax returns online directly with the IRS for free. The pilot was conducted in 2023 and 2024, and Direct File will be available to the general public for the 2025 tax season.
Once you know the total you’ll owe in federal taxes, the next step is figuring out how much you need to have withheld per pay period to reach—but not exceed—that target by Dec. 31. Divide the total by the number of pay periods you expect to have. This will depend on whether you are paid weekly, biweekly, or monthly.
Once you know how much needs to be withheld, you can fill out a new W-4 form to reflect that number. You don’t have to wait for your employer’s human resources department to hand you a new W-4 form. Instead, print one yourself from the IRS website and deliver it to your employer to make the process happen more quickly.
If your employer isn't withholding enough, you will end up owing money to the IRS when you file your taxes in April. To avoid this, you will need to have additional tax withheld from each paycheck. The W-4 form has a place to indicate the amount of additional tax that you would like to have withheld each pay period.
If you’ve underpaid so far, subtract the amount that you’re on track to pay by the end of the year, at your current level of withholding, from the amount that you will owe in total. Then divide the result by the number of pay periods that remain in the year. This number is how much extra you want to have withheld from each paycheck.
You could also decrease the number of withholding allowances that you claim, but the results won’t be as accurate as entering a specific number.
If your employer withholds too much, you're essentially giving the government an interest-free loan for the year. Some taxpayers like the security of knowing that a tax refund is coming to them in the spring. But if you'd like to have that money available to spend or invest, try increasing the number of withholding allowances that you claim on the W-4.
Deciding on the exact number can be tricky. A simple method is to plug different numbers of withholding allowances into a paycheck calculator until it hits the amount closest to the federal tax that you want to have withheld for each pay period going forward.
Note that the IRS requires you to have a reasonable basis for the withholding allowances that you claim. The agency doesn’t want you fiddling with its form just to avoid paying taxes until the last minute. If the IRS finds that you have intentionally provided incorrect information on your W-4, you may be subject to fines. It can also require your employer to withhold the correct amount, taking the choice out of your hands.
If you don’t have enough tax withheld, then you could be subject to underpayment penalties and interest. Underpayment penalties are separate from the penalties for providing incorrect information; they apply even if you’ve made an honest mistake.
You can avoid underpayment penalties by making sure that your withholding equals at least 90% of your current year’s tax liability or 100% of your previous year’s tax liability (110% if your adjusted gross income [AGI] was $150,000 or more), whichever is smaller.
You’ll also avoid penalties if you owe less than $1,000 on your tax return.
If it’s so early in the year that you haven’t yet received any paychecks, you can just divide your total tax liability for the year that just ended by the number of paychecks that you receive in a year.
Then, compare that amount to the amount that’s withheld from your first paycheck of the year once you get it and make any necessary adjustments from there.
If you adjust your W-4 to make up for any underpayment or overpayment partway through the year, then you’ll want to fill out a new W-4 in January. Otherwise, your withholding will be off for the new year.
If your income fluctuates unpredictably, accurately estimating your tax burder becomes more difficult. But following the steps above should help you get close to a reasonable number. If you find that it is necessary, you can redo your W-4 several times during the year if necessary.
Your tax withholding must be equal to at least 90% of your current year’s tax liability—or 100% of your previous year’s tax liability (110% if your adjusted gross income [AGI] was $150,000 or more)—whichever number is less.
The Internal Revenue Service’s (IRS’s) Tax Withholding Estimator is the best one to use if you have a complex tax situation. It takes longer than some online calculators, but it asks you more detailed questions.
You can download a W-4 form from the IRS website.
If you calculate your withholding accurately, you could end up owing no federal tax payments come April. Watch your income carefully, and adjust your W-4 if you need to. You can submit a new W-4 form multiple times throughout the year if needed. Just be sure that you don’t cut it so close that you end up owing underpayment penalties.
