How often should taxpayers review their withholding allowances according to tax best practices?

Taxpayers should review their withholding allowances every year as a best practice. This annual check helps ensure that the amount of tax withheld from their paychecks aligns with their current financial situation and tax liability. Changes in income, deductions, credits, or tax laws can significantly affect what individuals might owe or receive back as a tax refund.

By reviewing withholding allowances annually, taxpayers can make necessary adjustments, which may help them avoid under-withholding (leading to a tax bill at the end of the year) or over-withholding (resulting in a smaller paycheck and an unnecessarily large refund). This proactive review is particularly important if there have been any changes to personal circumstances or tax laws that could influence their tax situation.

Other options, such as reviewing only during major life changes or when switching jobs, could leave taxpayers vulnerable to surprises at tax time, as they might miss important adjustments that should be made due to changes that occur throughout the year. Regular annual reviews foster better financial planning and tax management.