Since January, the IRS has lost over a quarter of its workforce. And just this month, House lawmakers introduced another proposal to further slash the IRS’s budget.
This is funding that directly impacts taxpayer services, refund processing, audit functions, and yes, your ability to get on the phone with the IRS when you’re facing a tax problem.
Translation: You’ll see a dramatic drop in customer service, an increase in wait times when you try to reach the IRS about real questions, and more of an emphasis on a self-service style of tax filing.
If you’re comfortable going the self-service route, make sure you are pulling a Santa Claus (you know… filling out your tax forms and checking them twice or thrice).
Because the mistakes you make are on YOU to catch before they become something costly. That’s a lot of pressure.
But if you know you need more support to get things filed correctly, let’s talk: 414-325-2040
The self-service route can be troublesome –> if you miss required forms or don’t really know what records you need to have available to prove what you claimed, or you just filled things out incorrectly. Even if you used tax software to prepare your returns, things can go wrong (trust me, I’ve seen it plenty with Milwaukee clients I’ve helped).
So while there’s a lot out of your control with shrinking IRS service levels, there’s one area I’ll highlight today that’s squarely in your control. And that’s your withholding – and what you do with it now to set yourself up for an ideal tax season experience.
How to Adjust Withholding Under OBBBA: The Neal Group, LLC’s Guide
“Plans are only good intentions unless they immediately degenerate into hard work.” —Peter Drucker
Quick Summary: OBBBA and How to Adjust Withholding
- OBBBA changed 2025 taxes: new brackets, deductions, and credits may throw off your paycheck withholding.
- New deductions: tips (up to 25K), overtime premium (up to 12.5K), and auto loan interest (up to 10K annually).
- Family and senior boosts: higher Child Tax Credit, new senior deduction, and expanded HSA access.
- Action step: use the IRS Withholding Estimator and update your W-4 or make estimated payments.
You ever get a surprise in April? You either owe way more than you thought, or your refund is not what you expected.
Well, the odds of that happening when you file your 2025 taxes just went up because of the One Big Beautiful Bill Act (OBBBA).
I want to bring this to your attention now, because mid-year is the best time to adjust course. Why? If your withholding from your paycheck is off, it’s compounding every pay period. Your strongest ally here is time.
So, let’s get your withholding on track now, while time is on your side. Here are the main ways OBBBA impacts your withholding and what you need to do about it…
The New OBBBA Tax Terrain
OBBBA is the biggest overhaul of the tax code since 2017. Which means it affects almost every Southeastern Wisconsin taxpayer in some way (including you). So, to know how to adjust withholding accordingly, let’s start with what’s changed:
Permanent Tax Brackets
The good news: The individual tax brackets set by the TCJA are now permanent (until Congress changes their mind again… but that’s a different article).
Even better news? These brackets will adjust every year with inflation, preventing “bracket creep.” This means if your wages keep pace with inflation, you won’t get bumped into a higher bracket just for getting a cost-of-living raise.
This makes long-term strategies like Roth IRA conversions, timing capital gains, and charitable giving a lot more predictable from year to year.
The Standard Deduction
Standard deductions jumped again: 31.5K for joint filers and 15.75K for singles. Most Milwaukee taxpayers will likely stick with the standard deduction, but if you live in a high-tax state, you may want to take a fresh look at itemizing. The SALT cap is now 40K for married couples, which lifts the deduction ceiling that’s capped out filers for years.
Above-the-Line Deductions
These are the deductions that reduce your Adjusted Gross Income (AGI) even if you don’t itemize. Here’s what’s new:
- Tip Income Deduction: Up to 25K of reported tips can now be deducted directly from AGI. It must match what’s shown on your W-2.
- Overtime Premium Deduction: You can deduct the premium part (the “half” in “time-and-a-half”) of overtime pay, up to 12.5K/year. You’ll need employer records or payroll breakdowns.
- Auto Loan Interest: Interest on U.S.-assembled new cars (2025–2028 only) is now deductible up to 10K annually if your AGI is below 100K (single) or 200K (joint).
So, if you’re in one of these categories and not planning around it yet, you’re likely overpaying your taxes.
Family & Retiree Benefits
Milwaukee families get a bump from OBBBA too: The Child Tax Credit climbs to 2.2K in 2025 and will now track with inflation.
Also, if you’ve recently had a baby or adopted a child (congrats!), you’re eligible for a Trump Account. For children born between January 1, 2025, and December 31, 2028, the government makes a one-time 1K deposit. With decades to grow, even just by making small annual contributions, that money can really add up by the time your child turns 18.
And if you’re age 65 or older, you qualify for an additional 6K deduction on top of the current standard deduction (2K for single filers and 1.6K for per eligible spouse for married filers). Though this benefit phases out as income rises.
How to Adjust Withholding: Your Mid-Year Action Plan
Your first step here is a full sweep of your 2025 income picture. You need to estimate your:
- Total 2025 income (wages, self-employment, interest, dividends, capital gains, retirement distributions, gig work… everything).
- Total deductions and credits, factoring in OBBBA’s new changes (see above).
- Expected filing status and dependents (especially if there’s been a change: marriage, divorce, new baby, etc.).
Then, go to the IRS Tax Withholding Estimator and plug everything in. And yes, this tool accounts for OBBBA’s new changes. It’ll tell you if you’re on track or if you’re heading for a “surprise” in April.
Once you’ve got the recommendation on how to adjust withholding, update your Form W-4 with those recommendations and hand it off to your employer. (Pro tip here: you can use Step 4(c) on the W-4 to add any extra withholding you may need to catch up or pull back.)
And if you’re self-employed or getting income without withholding (gig work, investments, etc.), consider making estimated payments using Form 1040-ES. You can still avoid penalties if you stay on top of payments now.
One big note: recordkeeping is HUGE here. Some of these new deductions (like the tip and overtime ones, especially) won’t appear in standard tax software prompts. You’ll need documentation if the IRS ever comes knocking.
Here are a few key things to keep in a safe spot:
- Pay stubs and W-2s showing reported tips and overtime premium pay
- Car loan paperwork showing interest paid, VIN, and proof of U.S. assembly
- Receipts or statements showing HSA contributions (especially if you’re 65+ and back in the game)
FAQ
“Do I have to itemize to claim the new tip or auto interest deduction?”
Nope, those are above-the-line deductions. They reduce your AGI regardless of whether you itemize.
“What if my income is very irregular (e.g., seasonal worker, gig economy)?”
Use the IRS Withholding Estimator each quarter or make estimated payments using Form 1040-ES to stay current.
“What if I’m self-employed with no withholding at all?”
You’ll likely need to make estimated payments (Form 1040-ES) and consider prepaying into safe-harbor thresholds (e.g., 100 percent of last year’s tax, 110 percent if your AGI is over 150K).
“Should I worry about underpayment penalties if I adjust now?”
If you act soon and either adjust your withholding or start estimated payments that meet safe-harbor rules, you can avoid most penalties.
How we can help
The best thing you can do right now is not sit on your hands until January. Adjust your withholding. Run the numbers. Document what you need. These mid-year moves could save you dollars and stress during tax season.
Need help getting it right? That’s what we do. Let’s sit down, run your projections, and make sure you’re in the best possible position for tax season… while there’s time to make a difference:
414-325-2040