When you start a new job, your employer will have you fill out an IRS W-4 Form. Many people just fill in the blanks, hand it in, and never really think about the implications of what they put in the space asking for withholding allowance. That amount is very important in assuring that you are paying the correct amount of taxes.
If you are not having enough tax withheld, you will owe money to the IRS when you file your taxes. In order to lessen this burden on April 15th, you should reduce the number in the withholding allowance. You can do this at any time, just ask your employer for a new form. If you work at another job, your spouse has a full time job, or you have other income, you should review your W-4 form to see if you should reduce the number in the withholding space. You want to avoid having to pay the IRS a large payment or even a penalty.
On the other hand, what happens if too much tax is being withheld from your salary? You'll receive a refund when you file your taxes, but that may not be a good thing. Remember, that's your money. Do you really want the government using your money during the year? If you received a big refund last year, you may want to review your withholdings and update them to fit your present circumstances.
Your ultimate goal is to break even. The best time to review your W-4 Form is early in the year. Also, if you have had any life changing experiences such as the birth of a child, buying a new home, or your spouse retires, you will want to make changes to your withholding to reflect those changes.