What Is Withholding Tax, And How Do You Get It Right?

Whether you work as a salaried employee or receive income from a pension, commission or other sources, understanding how much tax should be withheld from your earnings is crucial.

Withholding too little tax can result in an unexpected tax bill. However, withholding too much allows Uncle Sam to use your money interest-free—until you’re paid a refund.

Here’s what you should know about tax withholding and how to adjust it.

Your withholding tax is a term for the federal income taxes that are taken from your earnings and sent to the IRS throughout the year. Taxes are withheld not only from your paycheck, but also from other types of income, including commissions, vacation pay, reimbursements and retirement payments.