If you forgot to change your state withholding after a move, a new job, or a shift to remote work, submit a corrected state withholding certificate to your employer now and use estimated tax payments to cover whatever shortfall has already accumulated. Acting quickly matters because the federal safe harbor, which most states mirror in some form, keeps you free of underpayment penalties when your total payments reach at least 90% of this year’s tax or 100% of last year’s liability. Every week you wait, the gap grows and the fix gets harder.
Measure the Gap Before You Fix It
Pull your most recent pay stub and find the year-to-date state tax withheld. Then estimate your total state tax liability for the year based on your gross income and your state’s rates. The difference tells you whether you’re underpaying, overpaying, or roughly on track.
Underpayment is the urgent case. If withholding has been going to the wrong state or applied at the wrong rate, you’ll owe the balance when you file, plus potential penalties and interest. States generally charge interest on unpaid balances from the original due date until you pay, at rates that commonly run from 7% to 15% per year. Interest accrues daily, so the bill keeps ticking upward until you close the gap.
Overpayment is less urgent. You’ll get a refund when you file, but the money sat in the state treasury earning nothing for you. Correcting your withholding now puts the cash back in your paycheck.
Submit a New Withholding Form to Your Employer
The fix starts with your employer’s payroll department, not the state tax agency. Your employer is the withholding agent that sends payments to the state on your behalf.1Internal Revenue Service. 2026 Form W-4 – Employee’s Withholding Certificate
Most states have their own withholding certificate separate from the federal Form W-4. New Mexico, North Dakota, and Utah use the federal W-4 for state withholding, and a few states like Colorado let you use either version. Every other state with an income tax has its own form and its own rules for allowances or extra withholding.
If you already know you’re behind, ask for a specific additional dollar amount per paycheck rather than trying to hit the right number of allowances. Take your estimated shortfall, divide it by the paychecks remaining in the year, and enter that figure on the form. The change usually takes effect the next payroll cycle. Check your following stub to confirm.
One important limit: the corrected rate only applies to future paychecks. It does nothing about the gap already built up from earlier in the year. If that gap is large, you need estimated payments too.
Close the Accumulated Shortfall With Estimated Payments
Estimated tax payments let you send money directly to the state to cover the difference between what was withheld and what you actually owe. At the federal level, you use Form 1040-ES; most states have their own voucher or online payment portal.2Internal Revenue Service. About Form 1040-ES, Estimated Tax for Individuals Most state revenue department websites now accept direct electronic payments and give you an immediate confirmation.
Most states follow the federal quarterly schedule, with payments due in April, June, September, and January of the following year.3Internal Revenue Service. 2026 Form 1040-ES A few set slightly different dates, so check your state.
To size the payment, project your total annual state tax liability, subtract the withholding you expect by year-end at the corrected rate, and the remainder is what to send through estimated payments. Discovering the shortfall mid-year means you should make up the accumulated gap in your next quarterly payment, not spread it evenly across the remaining quarters. A shortfall found in August, for example, should be paid in full by the September due date.
Estimated payments work alongside corrected withholding, not instead of it. Withholding handles your ongoing liability from each paycheck. Estimated payments cover the hole from the months when the wrong amount was being taken out.
Keep Yourself Under the Penalty Thresholds
States assess penalties when total tax payments fall too short of what you owe. Most model their rules on the federal system, which gives you several ways to escape a penalty even if withholding was wrong for part of the year.
The Small-Balance Rule
Federally, no underpayment penalty applies if you owe less than $1,000 after subtracting withholding and refundable credits.4Internal Revenue Service. Topic No. 306, Penalty for Underpayment of Estimated Tax Many states have a similar de minimis threshold, though dollar amounts vary. A modest shortfall may leave you with a balance due but no penalty.
Safe Harbor Percentages
Federal law lets you avoid the underpayment penalty when your total payments equal at least the lesser of 90% of this year’s tax or 100% of last year’s tax. If your prior-year adjusted gross income exceeded $150,000 ($75,000 if married filing separately), the prior-year threshold rises to 110%.5Office of the Law Revision Counsel. 26 USC 6654 – Failure by Individual to Pay Estimated Income Tax Most states adopt some version of these thresholds, though a few use different percentages. Check your state’s Department of Revenue.
The prior-year safe harbor is useful when this year’s income is much higher than last year’s. Hitting 100% (or 110%) of last year’s tax through withholding and estimated payments combined avoids the penalty regardless of how large this year’s final bill turns out to be. You still owe the remaining tax, just without the penalty on top.
The Annualized Income Method for Uneven Years
If your income was uneven, say because you changed jobs mid-year, received a bonus in one quarter, or had a large capital gain, the annualized income installment method may reduce or eliminate the penalty. It recalculates your required payment for each quarter based on the income you actually earned during that period rather than assuming income was spread evenly.6Internal Revenue Service. Instructions for Form 2210 (2025)
Federally, Schedule AI of Form 2210 handles this calculation. Many states offer a similar option on their underpayment forms. Someone who moved partway through the year and forgot to update withholding often finds real relief here, because income in the new state genuinely started mid-year.
Reasonable-Cause Waivers
The IRS and many state agencies can waive penalties for reasonable cause when you made a genuine effort to comply but circumstances got in the way.7Internal Revenue Service. Penalty Relief for Reasonable Cause The IRS evaluates these case by case, weighing factors like the complexity of the situation, the steps you took to understand your obligations, and whether you relied on a tax advisor. A payroll error you didn’t catch, paired with a prompt correction once discovered, can sometimes qualify. Ordinary oversight or not knowing the rules generally does not on its own. States vary in strictness.
Federally, if you’re hit with a failure-to-pay penalty (a separate penalty from the estimated tax underpayment penalty), first-time abatement is available if you’ve filed on time and stayed penalty-free for the previous three tax years.8Internal Revenue Service. Administrative Penalty Relief Some states offer their own version.
When the Withholding Went to the Wrong State
Forgetting to update withholding after an interstate move often means the old state kept collecting while the new state got nothing. This is the messiest version of the problem, and you’ll need to deal with both states.
Getting Money Back From the Old State
File a nonresident return in the old state and claim a refund for the amount withheld in error. Attach a copy of your W-2 showing the withholding, proof of residency in the correct state such as a lease, utility bill, or driver’s license, and any exemption forms you should have filed. Some states also require a written explanation. The refund can take several months, so don’t count on it to cover what you owe the correct state.
Paying the New State
You still owe income tax to the state where you actually lived or worked. File a resident return there and pay the full amount due. If you can’t wait for the refund from the other state, cover the payment independently. Estimated payments to the correct state, as described above, help prevent an underpayment penalty from stacking up while you sort out the refund.
Claiming a Credit for Taxes Paid to Another State
If income was legitimately taxed by two states during the same period, nearly every state with an income tax offers a credit on the resident return for tax paid to the other state. The credit prevents true double taxation. Typically you file the nonresident return in the work state first, then enter the tax paid there on the resident return’s credit schedule. Each state uses its own form and calculation, so follow your home state’s instructions.
Reciprocity Agreements Between Neighboring States
About 16 states and the District of Columbia have reciprocity agreements that let you pay income tax only to your state of residence when you commute across a state line to work. Live in Pennsylvania and work in New Jersey, for example, and reciprocity means New Jersey shouldn’t withhold at all. You file an exemption form with your employer. If you moved between two reciprocity states and your employer was withholding for the work state, filing the proper exemption certificate stops the problem going forward, and a nonresident return in the work state gets back what was already withheld.
A Warning for Remote Workers
If you started working remotely from home in one state for a company based in another, don’t assume you only owe tax where you live. Most states tax you only where you physically perform the work, but six apply a “convenience of the employer” rule: New York, Delaware, Connecticut, Nebraska, Oregon, and Pennsylvania.9National Conference of State Legislatures. State and Local Tax Considerations of Remote Work Arrangements Under this rule, if you’re working remotely for your own convenience rather than because the employer requires it, the employer’s state can tax the income as if you were working there in person.
The result: two states can claim the same income. Your home state taxes you as a resident, and the employer’s state taxes you under the convenience rule. The resident credit for taxes paid to another state usually prevents full double taxation, but you may end up paying the higher of the two rates. Check whether the employer’s state applies the convenience rule before updating your withholding form.
Nonresident filing thresholds also vary widely. Twenty-two states require a nonresident return if you work there for even a single day. Others set thresholds ranging from a few hundred dollars of income to 30 days of physical presence.10Tax Foundation. Nonresident Income Tax Filing and Withholding Laws by State, 2026 Withholding thresholds and filing thresholds don’t always match, which can result in tax being withheld when you don’t have a filing obligation, or no withholding when you do.
A quick boundary: if you moved to or from a state with no wage income tax (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, or Wyoming), the direction of the move sets your task. Moving from a no-tax state into a tax state and failing to set up withholding almost certainly means you’re underpaying, so act now. Moving the other direction while your employer kept withholding for the old state means filing for a refund and submitting a corrected form to stop future deductions.11Tax Foundation. 2026 State Income Tax Rates and Brackets
If You Can’t Pay the Balance at Filing Time
Discovering a large shortfall late in the year can leave you with a bill you can’t cover all at once. Most state revenue departments offer installment plans that let you pay down the balance over time. You typically file the return first, then apply through the state’s online portal. Interest keeps accruing on the unpaid balance, but a plan prevents more aggressive collection like wage garnishments or bank levies.
File on time even if you can’t pay in full. The penalty for filing late is almost always worse than the penalty for paying late, and filing on time while paying what you can reduces total penalty exposure.