Withholding: Working through the W-4 worksheet

Because the federal income tax is a pay-as-you-go deal, you have the opportunity to adjust your withholding with your employer throughout the year.

If you got a big refund last year and your income and deductions are basically the same, you probably are having too much money withheld. That also could be the case if your income is about the same as last year, but you now have more deductions or credits.

On the other hand, you might not be having enough taxes withheld if you have a second job, your spouse works or you have other income not subject to withholding.

The basic W-4: The more allowances you claim on your W-4, the less income tax will be withheld. You will have the most tax withheld if you claim zero allowances.

To help you determine the correct number of allowances, you need to complete the eight-line worksheet that's atop the actual form you file. The worksheet questions take into account the number of dependents you have and whether you have a second job or working spouse. You can make these calculations online with the IRS' interactive W-4 worksheet by clicking here.

If you have only one job, are single or your spouse doesn't work, or any second income is less than $1,000, then the W-4 process is fairly simple. You get one allowance for yourself, your spouse and one each for your children or other dependents.

Next, you take into account your filing status. If you file as head of household, you get an extra allowance. You also get allowances for child or dependent care expenses more than $1,500 a year, as well additional allowances for any child tax credits you take.

The total of all these considerations is the number of allowances you put on your W-4 to get an accurate amount of pay withheld. Don't be surprised if this number of allowances is not the same as the actual exemptions you claim when you file your return in April. There may be a difference because you're figuring the credits and expenses upfront rather than subtracting them at the end, as you do when you file.

With taxes, if your life gets a bit more complicated, so does the paperwork you have to fill out. If you itemize your deductions or have a working spouse, you need to fill out the two worksheets that accompany the W-4.

Itemized deductions worksheet: You will want to reduce your withholding if you itemize deductions. The first W-4 worksheet will help you determine the correct amount of allowances to do that. It also will account for any other income you might have, such as dividends and interest, as well as adjustments to your income from alimony you paid, deductible IRA contributions you made or student loan interest you paid.

When you get the additional number of exemptions on this worksheet, you'll add these to the basic number you figured on your basic personal allowance worksheet. This total then goes on the new W-4 you give your boss to adjust your withholding.

Dual income worksheet: If you have two jobs or your spouse works, you might need to make further withholding adjustments to ensure that you have enough taxes withheld. The second W-4 worksheet takes this added income into account.

If you used the worksheet because your spouse works, be sure to discuss any changes you make on your W-4 because the second paycheck should be adjusted, too. The IRS recommends that in two-paycheck families, all the allowances that result from this worksheet be claimed by W-4 for the highest-paid job and zero allowances for the others.