Why is it important to have the proper amount of taxes withheld from your paycheck?

• A. Because it increases your gross income for the year
• B. So that your employer can reduce their payroll expenses
• C. To avoid owing a large sum to the government or receiving a large refund at tax time
• D. To ensure you qualify for more employee benefits

Answer: (C)

Verified step by step guidance

1. Understand the concept of tax withholding: Tax withholding is the process where your employer deducts a portion of your paycheck to pay your estimated income taxes directly to the government.
2. Recognize the importance of proper withholding: Proper withholding ensures that you pay the correct amount of taxes throughout the year, avoiding underpayment or overpayment.
3. Consider the consequences of under-withholding: If too little tax is withheld, you may owe a large sum to the government at tax time, which can be financially burdensome.
4. Consider the consequences of over-withholding: If too much tax is withheld, you may receive a large refund, but this essentially means you gave the government an interest-free loan instead of using that money throughout the year.
5. Understand the goal of proper withholding: The goal is to strike a balance where the amount withheld closely matches your actual tax liability, minimizing the risk of owing money or receiving a large refund.