What is withholding?

The income tax law is complicated, we all agree. Part of the problem is the terminology that is used.

"Withholding" means income tax that is held out of the wage payment to you.

For wages, income tax withholding is common and usually understood. That is based on the IRS tables and the W-4 form given to an employer.

You can customize the W-4 form. If you have a lot of itemized deductions (home mortgage interest, property taxes, charitable contributions, etc.) on Schedule A of Form 1040, you can reduce the income tax withheld, by adjusting the number of exemptions you claim on Form W-4. You also can increase the amount of tax withheld if that is your desire.

The more tax withheld, the less your net paycheck will be. However, the income tax withheld is really just a deposit with IRS for your tax return. You will offset the final tax with the tax already on deposit by withholding.

For IRA distributions, pension payments, Social Security benefits, annuities, etc., you can adjust the amount of tax withheld by filling out Form W-9 correctly.

Lots of folks have received letters from banks, etc., asking for a Form W-9. If you don't answer and send back a completed form, they must withhold some income tax from future payments to you.

If the bank or IRA custodian, etc., does withhold some income tax, you will claim that amount as a deposit on that year's income tax return. All you really lose is the use of the tax withheld money until your tax return is filed.

In this day and age, the possible interest lost from making the tax deposit early is pretty small. The interest rates are currently very low. The rates will go up as we experience more inflation in the future.

Because of the many changes in the income tax law Congress does, IRS has to revise the withholding tables frequently.

If you are not happy with the amount of income tax being withheld, take action. File a new Form W-4 (for wages) and W-9 (for retirement and other income). Always save a copy of the form and your transmittal letter. Then watch to be sure it is changed correctly in the future.

Did you hear "Light travels faster than sound. This is why some people appear bright until you hear them speak."

• John Bullis is a certified public accountant, personal financial specialist and certified senior adviser serving Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs, LLC.