Additional amount, if any, you want withheld from each paycheck?

Question

Does that mean to take out more money from my paycheck? How is that beneficial to me?

Answer 1

Yes, that's what it means.  If you aren't having enough withheld, you could end up having to make quarterly estimated payments or pay a lot when you file plus penalties - this happens to a lot of people who have side income from self employment or from investments.  It might be easier to just have more withheld from your paycheck than having to make quarterly payments.

If you aren't going to owe at the end of the year, there's no reason to have extra withheld.

Answer 2

Yes, that is what it means.

And regardless of what Bennie  said about people with poor money  management skills. It is actually a very useful tool for those that have very good money management skills.

If you determine that you will owe tax at the end of the year (for whatever reason extra job, investments or just simply not having enough withheld). You can increase your withholding to make up the difference and avoid underpayment penalties.

When, money is withheld from a pay check it is deemed to have been withheld evenly throughout the year (even if it was only withheld in the last quarter).

Which simply means you can avoid making quarterly payments and still not be penalize. You would also have use of the quarterly payment amounts that you didn't have to make.

The method Bennie proposed simply put it in a saving account. Might result in penalties that would probably exceed the interest earned. And, you would still have to pay tax on the interest that you are now using to pay penalties.

Hope this helps.

Edit: This technique only works if the money is withheld from a paycheck. If you are making quarterly payments, you still have to calculate when you made the payment compared to when you earned the income.

Answer 3

people use that to help them juggle taxes at the end of the year

Answer 4

Some may have self employed income or independent contractor income besides regular job. To take care of taxes on self employed income, you may want to have additional amount withheld.

Read: http://taxipay.blogspot.com/2008/03/w2-o...

Answer 5

If you have a hard time saving money, have a larger portion taken out. You'll get it all back in the form of a larger refund at tax time. You'll lose a few dollars interest all year by not saving yourself but it's a good tactic for those without self control or an inability to save religiously.  

Answer 6

Yes, it's money they take out of your paycheck but you are likely to get it all back at tax time if you had more than you owe in taxes withheld.

Some people have very poor financial management. So if they did not have the money withheld and reserved (they can't touch it), come tax time they have no money to pay their taxes. It helps these people. But if you are really good about managing finances and always have extra savings set aside, you may be able better off putting it in a savings account earning you a little bit of interest instead of zilch with the govt.  Have to be careful about having enough stashed to pay your taxes though.  

Answer 7

YES that's what it means.  Having extra money taken out for taxes.  It benefits you if you owe taxes when you file your return, by having more paid in.  Otherwise, no benefit, except that you get a larger refund when you file taxes.  Better to put money into your 401k at work, getting matching employer money and reducing your taxable income and saving for your retirement.