Your tax withholding is based on the number of allowances claimed on IRS Form W-4, Employee’s Withholding Allowance Certificate, filed with your employer. It is important to have the right amount of tax withheld from your pay throughout the year. The total withholding for the year should match the total tax liability for the year as closely as possible.

If you receive a large refund or are required to pay additional tax with your return, check your withholding amount. If too little tax is withheld from your pay, you will owe federal income tax at the end of the year and may be required to pay interest and penalties. If too much tax is withheld, you lose the use of your money until your tax refund is received.

Insufficient tax may be withheld if:

--    You have more than one job.

--    You and your spouse both work.

--    You have income that is not subject to withholding, such as interest, dividends, capital gains, or rental income.

--    You owe other taxes, such as self-employment tax or taxes for employees in your home.

In addition, if you work only part of the year, your employer may agree to use the part-year withholding method to avoid having excess withholding deducted from your pay.

Too much tax may be withheld if:

--    You received a large tax refund for the previous year and you expect that your income and your tax credits, adjustments, and deductions will remain approximately the same in the current year.

--    You expect a significant increase in your tax deductions, credits, or adjustments.

--    You qualify for additional tax credits in the current year.

You can find out more about withholding the right amount at the Internal Revenue Service Web site IRS Publication 919, “How Do I Adjust My Tax Withholding?” (PDF).