Tax Withholdings Explained
Tax withholdings are simply the chunk of money your employer sets aside from each paycheck to cover your taxes. Even though tax returns are due in April, you pay your tax bill a little at a time all year long.
Two factors determine how much tax is withheld from your paycheck:
How much you earn each pay period
The allowances you claim on your W-4 form
The allowances on your W-4 form basically reduce how much your employer deducts from your paycheck for income taxes. The more allowances you claim—for yourself, your spouse and your kids, for example—the less money your employer will withhold for taxes. Withhold too much, and you get a tax refund. Withhold too little, and the IRS sends you a bill.