Double Check Your Federal Withholding

by MB on December 30, 2007

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Do you receive a big tax refund every year? If you do, you need to adjust your federal tax withholdings. When you pay in more than you are required, you are in effect, giving the government an interest free loan.

Many people intentionally have more tax withheld than is required in order to get that big refund. I even had a co-worker tell me that over withholding was a “savings account” for she and her husband. I explained to her that it was a much better idea to calculate the correct withholding and have the difference automatically deposited into a savings account with each paycheck.

Under withholding can also be a big problem, because you could potentially be subject to fees and penalties.

The Internal Revenue Service provides a free calculator on their site for assessing whether you withholding amount is sufficient.

To change your withholding amount you will need to complete IRS Form W-4 (Employee’s Withholding Allowance Certificate). Your Human Resources, or Payroll departments should be able to assist you in properly filling out the paper work.

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