Employee Tax Withholding: Advice for Employers

Tax season is here, and it’s likely that at least one of your employees is asking you why their refund was so big this year, or worse… why they owe so much money. You’re not a tax professional so if you don’t know the answer, that’s normal! However, we’re here to give you some quick advice on how to handle questions regarding tax withholding from your employees. First, let’s learn a little about tax withholdings!

What is Tax Withholding?

Tax withholding is the amount you deduct from your employee’s paycheck to send to the IRS, as specified by the employees themselves on their W2.

Every employee owes a certain amount of taxes at the end of the year, and that amount varies with their income level (minus their deductions). Tax withholding is how an employee can pay (or not pay) a certain amount each month towards that end-of-the-year bill. If they choose to have their employer withhold more money than they owe at the end of the year, they’ll get a refund. If they choose to take home more money per paycheck, they’ll likely owe.

The choice on how much to withhold is up to the employee. The commonly held best practice is that you should try to balance your tax withholding as close to perfectly as possible – that way, you maximize the amount you take home each paycheck without owing taxes at the end of the year. However, some prefer to take home as much as possible and don’t mind the big tax payment during tax season, and others withhold the maximum and get a big refund.

Calculating the Proper Amount for Your Employee to Withhold

If an employee asks how much they should withhold in taxes, tell them that the proper amount to withhold is based on a number of personal factors. Again – for some, it’s best to take home as much cash as possible. For others, a big refund in March or April is the way to go. And ideally, getting the perfect amount taken out of each paycheck to break even on returns is best.

For most employees, they’ll want their withholding throughout the year to match what they’ll owe at the end of the year. Calculating that can be tricky for them, and withholding factors could change throughout the year. However, there are tools you and your employees can use.

  1. The official IRS Tax Withholding Estimator – The IRS has an online tax withholding estimator that can help you determine the appropriate amount of taxes to withhold from your paycheck. You will need to enter information about your income, deductions, and credits, as well as your filing status and any other relevant information.
  2. Use the W-4 form: Employers should provide employees with a W-4 form that you can fill out to indicate the amount of federal income tax to withhold from your paycheck. The form includes a worksheet that will help you complete the W-4 form.
  3. If your tax situation is complex, or you want a tax professional to help, it is recommended that you seek out a tax pro or CPA. Employers can point employees in the right direction to give employees the tools they need to complete the forms, but employees should not look to their employers to fill this information out for them, or to advise them on what exact elections to take.

Capital Payroll Partners Makes Tax Season Easy

A solid course of action in situations where your employees are asking for tax or financial advice is to steer them to a professional. Once they’ve determined the best course of action for them, we are here to help.

Capital Payroll Partners offers a number of tools that make tax season easier for both you and your employees, and we also offer easy ways for them to change or update their withholdings.

If you have any questions. are interested in pricing, or are looking for more advice, get in touch today! You can call us directly at (804) 364-7220 or reach out to us online using our contact form. We look forward to speaking with you!