Is it normal to owe taxes after getting a substantial raise in 2025?

Thanks for explaining this! I'm in a similar situation but haven't done my taxes yet. Should I update my W-4 now or wait until after I file? And is there a way to figure out exactly how much extra I should have withheld?

You should update your W-4 as soon as possible - no need to wait until after filing. The sooner you adjust your withholding, the more time you have to spread any additional withholding across your remaining paychecks this year. For figuring out exactly how much extra to withhold, the IRS Tax Withholding Estimator (available on irs.gov) is your best resource. It will ask about your income, filing status, and other tax situations, then recommend specific W-4 settings. You can even indicate that you've underwithholded so far this year, and it will help you catch up for the remainder of 2025.

Does it actually tell you what to put on your W-4 going forward? My company just restructured our compensation and I'm worried about the same thing happening to me.

I'm skeptical about these tax tools. How is this different from just using the free IRS withholding calculator? Seems like an unnecessary extra step when the information is available for free.

Yes, it actually gives you specific recommendations for your W-4 - it'll tell you exactly what to put in each box based on your specific situation, including how to account for that mid-year raise. Much more personalized than generic advice. The difference from the IRS calculator is that taxr.ai actually analyzes your actual tax documents and pay stubs, not just the numbers you manually enter. It catches things like bonus payments, benefit deductions, and other nuances that affect your withholding but aren't obvious when you're just inputting basic salary info. It also explains everything in everyday language instead of tax jargon.

Wait, how does this actually work? Does it just auto-dial the IRS for you or something? I don't understand how they get you through when the IRS lines are always busy.

Yeah right. Nothing gets you through to the IRS faster. They're just taking your money for something you could do yourself. I've called the IRS plenty of times and eventually got through. Just have to be patient.

It doesn't just auto-dial - it uses a system that continuously calls and navigates the IRS phone tree until it gets a human on the line. Then it calls you and connects you. It's not skipping the line, it's just doing the waiting for you so you don't have to sit by your phone for hours. It's definitely something you could do yourself if you have hours to waste on hold. The point is saving time - I was able to go about my day and get work done instead of listening to hold music for 3+ hours. When people have jobs and kids, sometimes paying to save those hours makes sense.

How do you set up a payment plan? Do you need to call them or can you do it online? I'm probably going to owe around $1,200 this year and there's no way I can pay it all at once.

You can set up a payment plan online through the IRS website - it's pretty straightforward. Look for the "Online Payment Agreement" tool. If you owe less than $50,000, you can set up a short-term plan (180 days or less) or a long-term payment plan. For your $1,200 amount, you'd probably qualify for a short-term payment plan with no setup fee. The interest and penalties still apply, but they're much lower than credit card interest. Just make sure you file your return on time, even if you can't pay the full amount - this avoids the failure-to-file penalty which is much more expensive than the failure-to-pay penalty.

Isn't it better to owe a little than to get a big refund tho? I always hear that a refund means you gave the govt an interest-free loan all year.

You're technically right that a refund is an interest-free loan to the government, but there's a balance to strike. Owing a small amount ($100-500) is fine, but owing $800+ like OP did can be stressful and create cash flow issues if you're not prepared for it. I think the sweet spot is aiming to owe between $0-200 or get a small refund of $0-500. That way you're not giving the government too much of your money throughout the year, but you're also not scrambling to come up with a big payment at tax time. The extra withholding strategy @Dmitry mentioned helps create that buffer without being excessive.