Why Does My Employer Withhold So Much Tax From My Pay?

Your employer must withhold exactly the amount you tell him to - no more and no less. When you started work, you filled out IRS Form W-4 and told your employer whether you are married or single, and how many withholding allowances you wanted to claim. You may have even asked them to withhold an additional dollar amount from each paycheck.

The payroll department uses the federal tax withholding tables to calculate the amount of income tax to withhold from your pay based on the information on your Form W-4, the amount of your pay, and the time period covered. If you don't remember what you entered on your Form W-4, ask someone in your payroll department for a copy.

If you usually get a tax refund, you should probably adjust your Form W-4 so your employer withholds less tax. You should also file a new Form W-4 if your circumstances have changed; for example, if you had a child, bought a house, or got married or divorced. I don’t recommend using the instructions that come with Form W-4 to calculate how many exemptions you should claim. It’s easier and more accurate to use the online calculator on the IRS Web site. Don’t worry if you don’t know the answers to all the questions – just do the best you can. You can find the calculator on the IRS website at www.irs.gov/individuals/article/0,,id=96196,00.html.

It’s also perfectly OK to adjust your Form W-4 by one or two allowances and see how it affects your withholding when you get your next check with the changes. Remember this rule: Fewer allowances mean more tax will be withheld. More allowances mean less tax will be withheld.

File the form by giving it to your employer. You do not have to file it with the IRS. Making sure you are having the right amount of tax withheld from your pay is one of the first important steps to taking control of your money. Check your withholding levels again at least once a year.

Sally Herigstad is a certified public accountant and writer. People used to ask Sally where they could find a good beginning book of money advice - one that didn't use terms they don't understand or that assumed they had a lot of money to invest. Looking at the personal finance sections of bookstores, Sally found plenty of books about investing and getting rich, and some about filing for bankruptcy, but nothing on surviving a financial crisis this month. As a result, Sally wrote Help! I Can't Pay My Bills, Surviving a Financial Crisis (St. Martin's Press).

Sally is a member of the Washington Society of Certified Public Accountants and the American Institute of Certified Public Accountants. You can ask personal finance questions on her Web site at http://sallyherigstad.com

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