What Is Other Federal Withholding on Form W-4?

The Form W-4, Employee’s Withholding Certificate, allows you to direct your employer on how much federal income tax to hold back from your paycheck. “Other federal withholding” is an additional, fixed dollar amount you choose to have withheld from each pay period. This tool is designed to help you fine-tune your tax withholding, aiming to more closely match your actual tax liability and proactively manage your tax payments throughout the year.

Common Reasons for Additional Withholding

A primary reason to request extra withholding is to account for income that is not subject to automatic payroll withholding. If you have a side business as a freelancer or independent contractor, that income is reported on Form 1099-NEC. Since no taxes are withheld from these payments, your overall income is higher than what your employer’s withholding calculation considers, which can lead to an unexpected tax bill.

Households with two earners may also find this option useful. When two incomes are involved, the combined amount may push the household into a higher tax bracket than the individual withholding rates account for. Using extra withholding on the W-4 of the higher-paying job can help cover this potential shortfall.

Significant income from non-wage sources is another common trigger for adjusting withholding. This includes earnings from investments, such as dividends or capital gains, or income from rental properties. Failing to do so can result in an underpayment penalty. To avoid this penalty, you must pay at least 90% of the tax you owe for the current year or 100% of the tax you owed for the prior year. If your adjusted gross income (AGI) in the previous year was more than $150,000 ($75,000 if you are married filing separately), you must pay at least 110% of your prior year’s tax.

Some individuals also use extra withholding as a forced savings mechanism. By intentionally having more tax withheld than necessary, they ensure they will receive a large tax refund after filing their return. While this amounts to giving the government an interest-free loan, many people prefer this method to ensure they have a lump sum of cash and to eliminate any risk of owing taxes.

Calculating the Extra Amount

The most accurate way to determine the correct amount for extra withholding is by using the IRS’s Tax Withholding Estimator tool, available on the IRS website. Before you begin, you should gather:

• Your most recent pay stubs
• Your spouse’s most recent pay stubs, if married and filing jointly
• Information about other sources of income, such as from self-employment or investments
• Details about any tax credits or deductions you expect to claim

The online tool will walk you through a series of questions about your financial situation. It will estimate your total tax liability for the year, compare it to your current withholding, and then recommend a specific dollar amount to add to your Form W-4.

As an alternative to the online estimator, you can use the worksheets included in the instructions for Form W-4. The “Multiple Jobs Worksheet,” for example, provides a manual method for calculating the additional tax needed when there are multiple sources of employment income. These worksheets are more cumbersome than the online tool but can still provide a reliable estimate.

The figure you calculate is the extra amount to be withheld from each paycheck, not a one-time deduction. You should be prepared to see this additional deduction on every pay stub once you submit the updated form to your employer.

Adjusting Your Withholding on Form W-4

Once you have determined the extra per-pay-period amount you wish to have withheld, you must complete a new Form W-4. You can obtain a blank form from your employer’s human resources or payroll department, or you can download it directly from the IRS website.

You will enter the additional dollar amount you calculated on Line 4(c), which is labeled “Extra withholding.” Do not alter other sections of the form in an attempt to achieve the same result, as this can lead to incorrect calculations by your employer’s payroll system.

You must also fill out your personal information in Step 1, including your name, address, and filing status. You must also sign and date the form in Step 5 to certify its accuracy. Submit the completed and signed form to your employer’s HR or payroll department.

After you have submitted the new Form W-4, your employer must implement the change no later than the start of the first payroll period ending on or after the 30th day from the date you provide it. It is a good practice to review your first paycheck after the change to confirm that the extra withholding amount has been correctly applied. You can adjust your withholding at any time by submitting a new Form W-4 if your financial situation changes.