I was talking with a client a few weeks ago about cash flow and a few other items, and he brought up frustration over taxes – namely that he always ends up having to pay in a large amount upon filing his return in April. I had a feeling this might be a more common occurrence that I realized so thought it would be worth discussing today.

Like most workers in the US, my client and his wife pay into federal and state income taxes via payroll withholdings. The level of these withholdings are based upon data shared with employers at some point in the past. However, as tax rules change and life factors fluctuate (such as level of combined earnings, itemization vs. standard deduction, etc), the withholding level may or may not be accurate.

If you also pay in via withholding, you may benefit from running a comparative calculation like the one I ran for my client. Namely, you are going to want to run calculations to compare your likely annual withholdings versus your likely 2026 tax liability – and see how they close they come to each other.

To estimate your withholdings, start with a current paystub (you’ll need to do this for your spouse as well if you are dual income household). Pull the YTD withholding amount (for both federal as well as state (if you pay state income taxes where you live)). Using that, estimate remaining withholdings. If you anticipate earning the same amount per pay period as you have YTD, you can multiply the per pay period withholding * remaining pay periods. If your earnings will vary in the final months of the year, you’ll have to determine the withholding percentage YTD and apply that to estimated remaining earnings. Either way, these calculations will give you a decent idea what you will have paid in against your federal and state income tax liability by 12/31 via your withholdings.

Now for the more challenging part – estimating your likely 2026 tax liability. There are a variety of online calculators for both state and federal taxes that can be used to give you an idea in advance of your return being calculated. Otherwise, you can work with your tax advisor or tax prep software if you DIY to attempt to get a valid calculation. For this to be worthwhile/helpful, you will want to make your inputs as accurate as possible so do your best to refine estimates of 2026 earnings, retirement contributions, health care premiums, property taxes, charitable contributions, and other key inputs.

Now, compare your likely 2026 withholdings vs. likely 2026 tax liabilities. If there is a large under withholding (ie; Withholding less than liability), you will end up having to make a large payment in April. If the opposite is true, you might be in for a refund. Neither are a great situation to be honest – and both might be worth adjustment of withholdings in future years. Be sure to work with your tax advisor for guidance before making any changes.

Also, when you complete that calculation, you’ll want to ensure that you are making sufficient payments for the current year to avoid interest or penalties. This ties back to prior articles about the concept of safe harbor – which you can find here. At the federal level, you will need to have paid in/withheld 90% of current year taxes or 100% (110% if your AGI was over $150K last year) of prior year taxes. If either of these levels are met, you may owe when you file but there will be no penalties. The safe harbor rules vary by state so be sure to check those as well. If you withholdings don’t put you in safe harbor, it might be a good idea to make estimated payments to remove the potential for a penalty. Again – work closely with your advisors as everyone’s situation will vary.

Good luck! Aren’t taxes fun?