Underwithholding is the act of not having enough money taken out of an employee's paycheck throughout the year to cover their federal, state and local taxes. This can leave employees with a large tax bill due to the IRS at the end of the year.

Underwithholding can happen when an employee changes their tax withholding situation throughout the year, such as when they get married, have a baby, start a new job, or even receive a bonus. Additionally, underwithholding may occur if an employee inaccurately fills out their W-4 form when they start a job, and they don't update it with their employer when their tax situation changes.

Underwithholding can have serious consequences for employees. Most employees only realize they’ve underwithheld after they file their taxes and find out they owe the IRS. Instead of getting a refund, they instead owe the IRS money, sometimes thousands of dollars. Even if the employee thinks they can pay their tax bill when it comes due, the IRS may charge them interest and/or penalties for not making regular payments during the year.

The best thing an employee can do to avoid being underwithholding is to periodically review their income and expenses to make sure they are accurately reporting their withholding allowances. Employees should also review their pay stub to make sure their taxes are being withheld correctly. And if their situation changes at any point during the year, they should file a new W-4 form with their employer to change their withholding allowances.

In addition, the IRS provides a tool called the Tax Withholding Estimator for employees to help them figure out the right amount of withholding to request from their employer. This tool helps employees get a better estimate of their taxes for the year and what their potential refund or balance due could be. It also helps employees plan ahead and make sure they are making progress towards their tax payment throughout the year.

By taking the time to accurately estimate their taxes, employees can avoid underwithholding, save themselves money and avoid owing any unexpected balance to the IRS. Taking proactive steps and planning ahead can help prevent an employee from being in a difficult financial situation.