Written by Wealth Consulting Group’s Caitlin Allard, CFP, EA

May 1, 2025

Now that another tax season is behind us, it’s the perfect time to reflect back on your tax picture—specifically, your W-4 elections. Whether you received a nice refund or ended up owing taxes, your latest return holds valuable clues that can help you avoid surprises (or take advantage of opportunities) before you file your taxes next year.

If You Got a Refund: Congrats, But Let’s Talk

Getting a refund can feel great—like a surprise bonus—but it really means you gave the IRS an interest-free loan all year. While many people enjoy getting that lumpsum, it might make more sense to increase your take-home pay throughout the year instead.

Now’s a good time to ask:

• Do you want to reduce your refund and get more in your paycheck each pay period?
• Were there deductions or credits you didn’t fully use that could influence next year’s return? Some examples include traditional IRA contributions and the student loan interest deduction.
• Have there been any life changes (like marriage, kids, home purchase, etc.) that may affect your refund next year?

If You Owed Taxes: Time to Avoid That Surprise

Owing taxes at filing time can be stressful, especially if it caught you off guard. If this was your experience, it’s a signal that your current withholding isn’t covering your total tax liability.

Things to consider:

• Did you have freelance, side income, or a second job?
• Did you sell stock or other property at a profit?
• Were you under-withholding due to claiming too many dependents or deductions?
• Are you no longer itemizing deductions due to lower medical expenses, mortgage interest, or charitable contributions?
• Did you get a raise that bumped you into a higher tax bracket?

Updating your W-4 now can help spread out your tax liability over the year instead of leaving you with a big bill (and potentially penalties) next April.

Don’t Forget About State Taxes

Federal taxes get all the attention, but state taxes matter too—especially if you live in a state with high tax rates or work in a different state from where you live.

If you live or work in a state with an income tax, check your state’s withholding form or estimator tool. Like the federal W-4, many states allow you to adjust allowances, additional withholding, or even select a flat dollar amount per paycheck.

Reasons to update your state withholding:

• You owed or got a large refund at the state level
• You’ve moved to a new state
• Your income or household situation has changed

How to Update Your W-4

The first step is to take advantage of the free IRS Tax Withholding Estimator to run the numbers for your specific situation. The tool will walk you through a series of questions to help estimate your total tax liability for the year and suggest adjustments you need to make on your W-4. You will need a copy of your 2024 return as well as your recent paystubs (and your spouse’s if filing jointly) and income from other sources such as side jobs or investments.

Once you complete the steps and have the results from the IRS Tax Withholding Estimator and your state’s tax calculator, if applicable, you will need to fill out a newW-4 form and state withholding form with your employer(s).** Most employers let you update your W-4and state tax withholding through your HR or payroll portal. When you fill out a new form you can change:

• Your filing status
• The number of dependents
• Other income or deductions
• Any extra amount you want withheld from each
  paycheck

Once it’s submitted, you should see the impact on your next paycheck or two.

The Bottom Line

Your W-4 isn’t a “set it and forget it” form. It’s a living document that should reflect your current financial reality. Use your 2024 tax return as a roadmap and make those small adjustments now so you’re not surprised next April. Whether it’s a lower tax bill, or simply more control over your cash flow, keeping an eye on your tax withholding can help keep your financial goals on track. As always, please reach out to your trusted advisor with any questions.

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Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.