Withholding your taxes -- what's the right amount?

One of the keys to avoiding penalties or other nasty surprises come tax time is to make sure your withholding is correct. Withholding can sometimes feel complicated, but it boils down to just a few issues: filing status, number of dependents, pay frequency and pay amounts.

Social Security and Medicare (sometimes referred to together as "FICA") taxes are the easiest to figure: Those taxes are simply withheld from your wages by your employers at a flat rate. For 2009, the amount withheld from your pay for Social Security is 6.2% on earnings up to $106,800. The amount withheld for Medicare is 1.45% on all earnings.

Federal income tax withholding is not a flat rate and is based on your individual circumstances. The best way to figure out the correct amount for your employer to withhold is to complete a federal form W-4 (available for download here).