Treasury Secretary Scott Bessent urged workers this week to revisit their paycheck withholdings for 2026, saying a change could put more money in paychecks immediately. Tax professionals warn the move can backfire: errors in withholding updates could leave taxpayers owing money — or facing penalties — when they file next year.
Why this matters now: Congress approved several tax changes that took effect for 2025, and the IRS did not supply new employer withholding tables to reflect all of them. That gap has already produced larger-than-usual refunds for many filers, and it complicates decisions about whether to keep or change payroll withholding for 2026.
What happened this spring
Lawmakers rolled out multiple tax adjustments last year that affect 2025 and beyond, including new deductions aimed at specific income types and a higher charitable break for non-itemizers. Employers, however, continued using existing withholding guidance because the IRS did not issue updated tables in time. The result: many taxpayers saw bigger refunds than in prior years — a trend visible in early- April data showing the average federal refund rose by several hundred dollars compared with the previous filing season.
That picture matters for 2026 planning. If you base your 2026 withholding choice on your 2025 refund without checking the math, you could under- or over-pay through the year.
Why experts urge caution
Payroll withholding is an estimate of annual tax liability divided across paychecks. Tax advisers say it’s fine to tweak withholdings when your situation has meaningfully changed — for example, a raise, a new job, marriage, divorce, or the arrival of a child. But making quick, sweeping changes because of a one-time refund increase can create a shortfall at tax time.
Certified advisers warn of two concrete downsides if you lower withholding too much: you could end up with a sizable tax bill in 2027, and you might face an underpayment penalty if your estimated tax payments fall below IRS thresholds.
How to check your withholding quickly
Here’s a simple approach tax professionals often recommend if your paycheck and tax situation are largely unchanged from 2025:
- Find your total 2025 federal tax liability from last year’s return (Line for total tax).
- Divide that annual tax by the number of pay periods you’ll have in 2026 (26 for biweekly, 12 for monthly, etc.).
- Compare the result to the federal tax being withheld each paycheck now. If withholding is higher, you may safely reduce it; if it’s lower, consider increasing it or making an estimated payment.
For many people, this quick calculation is a reasonable first check — but it’s not a substitute for a full review when your income or family situation changes.
Practical steps before you change anything
Instead of guessing, consider these safer steps:
- Use the IRS withholding estimator online to generate an updated Form W-4 you can give to your employer.
- Run a scenario that factors in any new deductions or credits you expect in 2026.
- If you anticipate a temporary shortfall, plan to make an estimated tax payment to avoid penalties.
- Ask a CPA or certified financial planner to review complex changes like stock-option income, a new side business, or large one-time gains.
These steps help reduce the risk that a desire for more take-home pay will turn into an unexpected tax bill next spring.
Who might benefit — and who should be careful
Workers who saw unusually large refunds this year and whose income and filing status are steady could consider lowering withholding to boost monthly cash flow. On the other hand, anyone with fluctuating income, rental or investment earnings, or significant life changes should be cautious and run the numbers first.
Ultimately, the message from tax pros: don’t treat a bigger-than-usual refund as a reliable guide for 2026 without a quick calculation or an updated W-4. A little homework now can prevent a larger headache at filing time.
Quick checklist
- Gather last year’s tax return and your most recent pay stub.
- Use the IRS estimator or consult a tax professional.
- If you change withholding, submit a new Form W-4 to your employer promptly.
- Monitor midyear pay stubs to confirm withholding matches your plan.
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Jordan Keller specializes in analyzing the US financial markets. With concrete recommendations, he helps you secure and boost your investments by providing strategies that adapt to market fluctuations.