Do You Have to Fill Out a New W-4 Every Year?

The W-4 form determines how much federal income tax is withheld from your paycheck. While many employees complete it when starting a new job, they may wonder if it needs to be updated annually.

Although the IRS does not require yearly updates, life changes or financial shifts can make revising the form beneficial.

When a New Form Is Needed

Certain events can impact tax withholding, making it important to review and update your W-4 when your circumstances change.

Marital Status

A change in marital status affects tax withholding. If you get married, your spouse’s income could move you into a higher tax bracket, or you may qualify for additional deductions depending on how you file. Couples typically choose between married filing jointly or married filing separately, each with different tax implications. The standard deduction for married couples filing jointly in 2024 is $29,200, compared to $14,600 for single filers.

Divorce can also alter your tax situation, potentially changing your filing status to single or head of household if you have dependents. The latter provides a higher standard deduction and more favorable tax rates. Adjusting your W-4 to reflect these changes can prevent under- or over-withholding and help avoid surprises during tax season.

Adjusted Income

A significant income change—whether an increase or decrease—can affect tax withholding. A salary raise may push you into a higher tax bracket, increasing your tax liability. For example, in 2024, the 22% tax bracket applies to single filers earning between $47,151 and $100,525, while those making $100,526 to $191,950 fall into the 24% bracket. Without updating your W-4, you may not have enough withheld, potentially leading to a tax bill and penalties.

Conversely, a reduction in income—due to job loss, a pay cut, or switching to part-time work—could mean too much is being withheld, resulting in smaller paychecks. If you have multiple jobs or a spouse with earnings, the IRS recommends using the Tax Withholding Estimator on their website to ensure accurate withholding adjustments.

Changes in Dependents

Having a child, adopting, or no longer claiming a dependent can significantly impact your tax situation. The Child Tax Credit allows eligible parents to claim $2,000 per child under age 17, with up to $1,600 refundable in 2024. Claiming additional dependents can reduce tax liability, which may justify adjusting withholding to increase take-home pay.

If a child turns 18 or becomes financially independent, you may lose eligibility for certain credits, leading to a higher tax obligation. The Credit for Other Dependents provides $500 per qualifying person, but it is nonrefundable, meaning it can only reduce your tax bill rather than generate a refund. Updating your W-4 ensures withholding reflects these changes, preventing excess deductions or unexpected tax payments.

Voluntary Adjustments Over Time

Even without major life changes, reviewing your W-4 periodically helps maintain accurate tax withholding. Tax laws, deductions, and credits change regularly. The IRS updates tax brackets annually to account for inflation, which can shift income thresholds and affect tax liability. Checking your withholding at least once a year ensures it aligns with current regulations.

Workplace benefits and retirement contributions also impact withholding. Contributions to tax-advantaged accounts like a 401(k) or traditional IRA reduce taxable income. In 2024, the 401(k) contribution limit is $23,000, with an additional $7,500 catch-up contribution for those 50 and older. Increasing contributions to these accounts may justify adjusting withholding to reflect a lower taxable income. Similarly, employer-provided benefits such as health savings accounts (HSAs) or flexible spending accounts (FSAs) can reduce taxable wages, altering the amount that should be withheld.

Side income from freelance work, investments, or rental properties can also affect tax obligations. Unlike wages from an employer, these earnings typically do not have taxes withheld automatically. If additional income pushes total earnings into a higher tax bracket, adjusting W-4 withholdings can help offset tax liabilities. The IRS Form 1040-ES provides estimated tax payment guidelines for self-employment and investment income, but modifying W-4 withholdings may be a simpler way to cover additional tax obligations without making separate payments.

Consequences of Outdated Withholding

Failing to update your W-4 when necessary can lead to unexpected tax bills or smaller-than-expected refunds. If too little is withheld, you may owe a significant amount when filing your tax return. The IRS may also impose underpayment penalties if your total withholding and estimated tax payments fall short of 90% of your current year’s tax liability or 100% of the prior year’s tax liability (110% for higher-income taxpayers earning over $150,000). These penalties are calculated based on the federal short-term interest rate plus 3%, which fluctuates quarterly.

Excessive withholding results in smaller paychecks throughout the year, effectively giving the government an interest-free loan. While receiving a large refund may feel like a financial boost, it often means you could have had more disposable income each pay period. Instead of overpaying taxes, those funds could be directed toward high-yield savings accounts, debt repayment, or retirement contributions, where they can accrue interest or reduce financial burdens.

Misaligned withholding can also create cash flow challenges, especially for individuals managing variable expenses. Unexpected tax liabilities may force some to rely on credit cards or personal loans, leading to interest charges and potential long-term debt accumulation. For those already balancing student loans, mortgages, or other financial obligations, failing to adjust withholding could make it harder to maintain financial stability.