The federal withholding tax tables have been adjusted to reflect increased standard deductions for 2025. While this may seem like good news, it could lead to insufficient federal tax withholdings from employees’ paychecks during 2025 if they rely solely on the updated tables without making necessary adjustments. This may result in employees owing money when they file their tax returns in 2026.
What Employees Need to Know
- Standard Deductions: For 2025, the standard deduction has increased to $15,000 for single taxpayers and $30,000 for married couples filing jointly. This means more of an employee’s income will be exempt from taxes, reducing the amount withheld from their paychecks.
- Updated Tax Tables: Payroll providers have updated the federal withholding tax tables effective January 1, 2025.
However, simply relying on the updated tables may not ensure employees’ withholdings are accurate for their individual tax situations. To avoid any surprises and prevent under-withholding when it’s time to file, we strongly encourage you to share this information with your employees and advise them to take action now.
Steps Employees Can Take to Avoid Under-Withholding
- Update W-4 Forms: Employees should review and update their W-4 forms regularly, especially if there have been changes in their financial situation.
- Use the IRS Tax Withholding Estimator: Available starting February 1, 2025, this tool can help employees determine if they need to adjust their withholdings.
- Account for Additional Income: If employees earn overtime, bonuses, or commissions, it’s critical they adjust their withholding settings to reflect this additional income.
Reminder
It’s ultimately the employee’s responsibility to ensure the correct amount of taxes are withheld to avoid a large tax bill at the end of the year. Encourage your employees to reach out to HR or payroll services if they need assistance with adjustments.
Additionally, remind employees to review their pay stubs each pay period carefully, checking for state and local tax deductions, as well as benefit-related deductions. Taking a few minutes now to review and adjust withholding settings can help prevent tax surprises come 2026.
If you have any questions or need assistance, please contact Linda Pappajohn at 302-737-6200.
