Withhold enough federal tax to cover your 2026 bill, and not much more. To avoid the underpayment penalty, withholding should reach the smaller of 90% of this year's tax or 100% of last year's (110% if last year's AGI topped $150,000), or leave you owing under $1,000. The IRS Tax Withholding Estimator turns that into exact W-4 entries.
So how much federal tax should you withhold? Below are the IRS targets, the 2026 Form W-4 line by line, and worked examples showing what each change does to a paycheck.
How much federal tax should I withhold?
Aim for the federal income tax you will actually owe, so you end the year with a small refund or a small bill. There is no fixed percentage. It depends on your income, filing status, other jobs, dependents and deductions, which is what Form W-4 collects.
| You withhold | At filing |
|---|---|
| Too little | You owe, plus a penalty if you miss the safe harbor |
| About right | A small refund or small bill |
| Too much | A refund: your own money, returned without interest |
For typical paycheck numbers, see how much tax is taken out of a paycheck and what percentage federal income tax really is.
How much do I need to withhold to avoid the underpayment penalty?
You generally avoid the penalty if you owe less than $1,000 when you file, or if withholding plus on-time estimated payments cover the smaller of 90% of your 2026 tax or 100% of your 2025 tax. If your 2025 AGI was over $150,000 ($75,000 married filing separately), the prior-year test rises to 110%.
| Safe harbor | What it takes |
|---|---|
| Owe under $1,000 | Balance due after withholding and refundable credits is below $1,000 |
| 90% of this year's tax | Pay in at least 90% of your 2026 tax |
| 100% of last year's tax | Pay in at least the tax on your 2025 return (a full 12-month year) |
| 110% of last year's tax | Replaces 100% if 2025 AGI was over $150,000 ($75,000 MFS) |
The prior-year test is the easiest to plan around. If your 2025 tax was $8,000 and your AGI was under $150,000, withholding $8,000 in 2026 avoids the penalty even if you owe $3,000 more in April. You still owe the $3,000.
How to fill out a W-4 for 2026, step by step
Everyone completes Steps 1 and 5; Steps 2 to 4 only if they apply. The 2026 Form W-4 uses dollar amounts. The old "allowances" (claim 0 or 1) ended in 2020.
| Step | What you enter | Effect on withholding |
|---|---|---|
| 1 | Name, SSN, filing status | Sets the standard deduction and rates |
| 2 | Multiple jobs, or a working spouse if filing jointly | Raises it |
| 3 | $2,200 per child under 17, $500 per other dependent (income up to $200,000, $400,000 joint) | Cuts it dollar for dollar |
| 4(a) | Other income with no withholding | Raises it |
| 4(b) | Deductions Worksheet total | Cuts it by about the deduction times your bracket |
| 4(c) | Extra dollars per paycheck | Raises it by that amount |
| 5 | Signature | Required |
The new Step 4(b) deductions worksheet
Page 4 holds the new deductions. You get them when you file either way; claiming them here moves the savings into each paycheck.
| Deduction | Worksheet limit | Total income under |
|---|---|---|
| Qualified tips | $25,000 | $150,000 ($300,000 joint) |
| Overtime (the "and-a-half" part) | $12,500 ($25,000 joint) | $150,000 ($300,000 joint) |
| Car-loan interest | $10,000 | $100,000 ($200,000 joint) |
| Age 65 or older | $6,000 per person | $75,000 ($150,000 joint) |
How does changing my W-4 affect my paycheck and refund?
Every dollar in Step 3 cuts withholding by a dollar over the year. Here is a family that skipped it:
- Annual withholding, Step 3 blank: 10% × $24,800 + 12% × $23,000
- $5,240
- Per paycheck, Step 3 blank
- $201.54
- Step 3 entry: 2 × $2,200
- $4,400
- Per paycheck with Step 3
- $32.31
- Extra take-home per paycheck
- +$169.23
- Refund at filing: blank vs filled
- about $4,400 vs $0
Same money either way: a refund in April, or $169 more in every check. Deductions work through your bracket instead. A single server earning $48,000, including $18,000 of qualified tips, who enters $18,000 in Step 4(b) sees annual withholding fall from $3,580 to $1,420: $83.08 more per biweekly check. Social Security and Medicare still apply to tips and overtime.
How much should I withhold if I have two jobs?
More than either employer takes on its own. Each payroll assumes its job is your only one and applies the full standard deduction and lowest brackets. Step 2 fixes that.
- Withheld with Step 2 blank on both
- $5,020 + $2,020 = $7,040
- Actual 2026 tax on $95,000
- $12,070
- Short at filing
- $5,030
- Withheld with the Step 2(c) box checked on both
- $8,785 + $3,285
- Short at filing
- $0
Blank forms paid in only 58% of the tax due. That fails the 90% test, so a penalty is likely unless the prior-year test is met.
How to adjust your tax withholding
- Gather recent pay stubs (your spouse's too, if filing jointly) and last year's return.
- Run the IRS Tax Withholding Estimator. It takes about 25 minutes, skips your name and SSN, includes the new deductions and produces a pre-filled W-4.
- Give the W-4 to your employer, not the IRS.
- Check your pay stubs. Employers must apply it by the first payroll period ending on or after the 30th day.
- Recheck each January and after marriage, divorce, a baby, a second job or a big raise.
Side income can go in Step 4(a) instead of quarterly estimated payments. Retirement payouts use Form W-4R; see how 401(k) withdrawals are taxed.
Can I claim exempt from federal withholding?
Only if you had no federal income tax liability in 2025 and expect none in 2026. Check the "Exempt" box and complete only Steps 1(a), 1(b) and 5. It lasts one year: file a new W-4 by February 16, 2027 to stay exempt. Claim it wrongly and you can owe the full tax plus penalties.
The bottom line
Treat the safe harbor as the floor and your real tax bill as the target. Fill in Step 3 for kids, Step 2 for two paychecks and Step 4(b) for the new deductions, then run the estimator every January.
