Skip to main content
Services
Investment Strategy
Wealth Management
Tax Planning
Financial Planning x Tech
Learn
Insights
Videos
Case Studies
Benefits of combining CPA & CFP
Firm
Log in
Financial Plan Login
Investment Report Login
Schedule a call
Services
Services
Investment Strategy
Wealth Management
Tax Planning
Financial Planning x Tech
Learn
Learn
Insights
Videos
Case Studies
Benefits of combining CPA & CFP
FirmLog in
Log in
Financial Plan Login
Investment Report Login
Book a Call
© 2020 Brickley Wealth Management
Discover the ins and outs of tax withholding on your paycheck and how it can impact your overall tax liability.
Blog Post
by ,

Understanding the Difference Between Tax Withholding vs. Actual Tax Owed: Solutions for Insufficient Withholding

Financial Planning
Tax Planning
Follow Us:
Notice: The content of this post is over two years old, information may not be up to date.

Navigating Your Paycheck: Understanding Tax Withholding and Actual Tax Owed

It can be tough to understand how tax withholding works on your paycheck. Sometimes, people get a surprise at tax time and owe more than they thought, even if they claimed zero exemptions. It’s not as easy as it seems. Your paycheck can include not just salary but also things like commissions, bonuses, and equity such as Restricted Stock Units (RSUs). Each of these potentially have different tax withholding rates. When the withholding rate is different from your actual tax rate, it may lead to a tax surprise. Understanding the distinction between tax withholding and actual tax owed is important. Let’s break it down.

Understanding Withholding

Income tax withholding is the portion of your income that your employer holds back each pay period to cover your estimated taxes. The amount withheld depends on the information you provided on your Form W-4. These funds are then sent to the IRS on your behalf. In essence, withholding is like making ongoing mini tax payments throughout the year.

However, the key is that withholding on your paycheck is simply an estimate. The actual tax you owe could be more or less depending on a variety of factors, such as your total income, deductions, credits, and the current tax laws.

Different Income, Different Withholding Rates

When you receive wages or a salary, the withholding is usually straightforward. But when other forms of income come into play—like commissions, bonuses, and RSUs—the tax withholding rates can vary.

For instance, bonuses and RSUs are often subject to supplemental withholding rates, which may be different from the regular income tax rates. When there is a difference, this is what leads to the tax owing or refund.

The Importance of Tax Projections

Given the complexities and the potential for under or over-withholding, it’s important to periodically check your withholding throughout the year, especially if you have multiple sources of income. This is where tax projections come in.

As financial advisors and tax professionals, we can assist our clients by asking them to provide us with year-to-date pay stubs and any other income activity. Using this information, we run a tax projection to estimate the actual tax for the year. If it looks like the withholding will fall short of the tax liability, we can then advise on making estimated tax payments to make up the difference and avoid a big bill (and potential penalties) at tax time.

Navigating taxes can be daunting. Understanding the difference between withholding and actual tax owed, and regularly checking in with your tax professional can help ensure you stay on track and avoid any unpleasant surprises come April. Reach out to our team for more financial strategies and tax support.

–––

Brickley Wealth Management is a Registered Investment Adviser*. Advisory services are only offered to clients or prospective clients where Brickley Wealth Management and its representatives are properly licensed or exempt from licensure. The information throughout this website is solely for informational purposes. The content is developed from sources believed to provide accurate information, and we conduct reasonable due diligence review however, the information contained throughout this website is subject to change without notice and is not free from error. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. Readers should conduct their own review and exercise judgment prior to investing and should carefully consider their own investment objectives and not rely on any post, chart, graph or marketing piece to make a decision. No investment or tax advice may be rendered by Brickley Wealth Management or Brickley & Company unless a client service agreement is in place. We are not providing any personalized investment advice through this website. Please consult your investment, tax, or legal advisor for assistance regarding your individual situation. Brickley Wealth Management does not provide legal advice, and nothing in this website shall be construed as legal advice. For more information on our firm and our advisers, please see the latest Form ADV and Part 2 Brochures and our Client Relationship Summary https://adviserinfo.sec.gov/firm/summary/287487. For a copy of our Privacy Notice, please go here.

*Please note that the term "registered investment adviser" and description of our firm and/or our associates as "registered" does not imply a certain level of skill or training.

Three Brickley team members smile at the camera in their headshots, the headshots overlap in a decorative style.

Need help understanding your financial situation?

Our team is ready to help you plan for your financial future. If you’re ready to make a plan, we make it easy.
Book a call

Key Financial Terms 
Related to this Post:

This is some text inside of a div block.

Restricted Stock Unit (RSU)

Restricted Stock Unit, a form of employee compensation involving company stock that vests over time.
This is some text inside of a div block.

Tax Bracket

Income range used to determine the tax rate applied to your income. The higher your income, the higher the tax rate.
This is some text inside of a div block.

Tax Credit

A dollar-for-dollar reduction of your tax liability. Can be refundable or nonrefundable.
This is some text inside of a div block.

Tax Deduction

An expense subtracted from taxable income, reducing the amount of income subject to tax.
This is some text inside of a div block.

Tax Loss Harvest

A strategy that involves selling an underperforming investment to offset capital gains and reduce taxes.

Brickley Insights

Subscribe to practical insights on important wealth management topics.

Your submission has been received!
Oops! Something went wrong while submitting the form.
We respect your privacy.
Three Brickley team members smile at the camera in their headshots, the headshots overlap in a decorative style.

Ready to make a plan?
We make it easy.

Book a Call
contact@brickleywealth.com
(650) 638-0111
Follow Brickley Wealth on LinkedIn.Follow Brickley Wealth on Twitter.

Services

Wealth Management
Tax Planning
Investment Strategy
Financial Planning x Tech

Learn

Case studies
About Us
BLOG
Benefits of combining
CPA & CFP
Finance Definitions

Connect

Contact
Financial Plan Login
Investment Report Login
Charles Schwab

Brickley Insights

Subscribe to practical insights on important wealth management topics.

Your submission has been received!
Oops! Something went wrong while submitting the form.
We respect your privacy.
161 W 25th Ave, Suite #204, San Mateo, CA 94403
Contact@brickleywealth.com
(650) 638-0111

Brickley Wealth Management is a Registered Investment Adviser*. Advisory services are only offered to clients or prospective clients where Brickley Wealth Management and its representatives are properly licensed or exempt from licensure. The information throughout this website is solely for informational purposes. The content is developed from sources believed to provide accurate information, and we conduct reasonable due diligence review however, the information contained throughout this website is subject to change without notice and is not free from error. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. Readers should conduct their own review and exercise judgment prior to investing and should carefully consider their own investment objectives and not rely on any post, chart, graph or marketing piece to make a decision. No investment or tax advice may be rendered by Brickley Wealth Management or Brickley & Company unless a client service agreement is in place. We are not providing any personalized investment advice through this website. Please consult your investment, tax, or legal advisor for assistance regarding your individual situation. Brickley Wealth Management does not provide legal advice, and nothing in this website shall be construed as legal advice. For more information on our firm and our advisers, please see the latest Form ADV and Part 2 Brochures and our Client Relationship Summary https://adviserinfo.sec.gov/firm/summary/287487. For a copy of our Privacy Notice, please go here.

*Please note that the term "registered investment adviser" and description of our firm and/or our associates as "registered" does not imply a certain level of skill or training.

2020 Brickley Wealth Management. All rights reserved.
Privacy Policy

Your Privacy is important to us

Customize your cookie preferences or click “Accept All” to agree to the storing of cookies on your device. View our Privacy Policy for more information.

Preferences
Accept
Deny
Privacy Preference Center

Below we list the different types of cookies that we use on the Site.  The specific cookies that we use, and the categories to which they belong, are available in the consent manager. To the extent any personal information is collected through cookies, our Privacy Policy applies and complements this Policy.

Always Allow Cookies
Close
Manage Consent Preferences
Required cookies enable you to navigate the Site and to use its services and features. Without these absolutely necessary cookies, we may not be able to provide the Site or certain services or features, and the Site will not perform as smoothly for you as we would like it to.

These cookies are used to deliver advertising that is more relevant to you and your interests. They may also be used to limit the number of times you see an advertisement and measure the effectiveness of advertising campaigns. Advertising networks usually place them with the website operator’s permission.

These cookies allow us to analyze your use of the Site to evaluate and improve our performance, for example, by providing us information about how our site is used.

Reject AllConfirm My Choices
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.