I'm a person with a disability and last year was the first time I ever filed taxes. Since I don't make much money, I was hoping to get a refund. Unfortunately, I ended up owing nearly $500 because they said I had "underwithheld" - this was on top of the $200 I paid to have my taxes filed. What is "withholding" and how can I avoid this in the future? Also, is there anywhere I can go to get free help to file my taxes this year?

While most of us recognize April 15 as TAX DAY (although since the 15th falls on Saturday in 2006, technically our taxes are due Monday, April 17th), we also pay taxes throughout the year. Every paycheck we receive, a certain amount is "withheld". Withholding is also known as pay-as-you-earn taxation, the method by which taxes are taken out of your wages or other income as you earn it and before you receive your paycheck. These withheld taxes are deposited in an IRS account and you are credited for the amount when you file your return.

The W-4- the form your employer has you fill out when you are first hired- asks you to enter the number of allowances you want to claim. This number is what your employer uses to calculate the amount of income tax to withhold. An allowance represents, in large part, how many people depend on your income. Usually, you claim one allowance each for yourself, your spouse and each of your dependents. The more allowances you claim on your W-4, the less income tax will be withheld. You will have the most tax withheld if you claim zero allowances.

However, you can adjust the number of allowance adjust for your situation to avoid having too much or not enough tax withheld. For example, if you have a lot of deductions -- several kids and big mortgage interest payment each month -- these factors will reduce your final tax bill, so you may want to claim more allowances on your W-4 to cut the withholding taken from your pay and hang on to more of your money now.

If you have income that escapes withholding - you run your own microenterprise or a job where you are paid as a contractor and not as an employee -- you might need to pay estimated taxes to avoid an underpayment penalty. This is where entrepreneurs and people who hire personal care workers especially want to pay close attention.

If you figure your allowances correctly, when you file your return in April you should neither owe a great deal in taxes nor get back a lot through a refund. While some folks like getting a big refund, that strategy is not necessarily to your advantage. That extra money you send to the government is, in essence, an interest-free loan from you to Uncle Sam. We would encourage you to consider taking that extra cash from reduced withholding and putting it into a savings account where it can earn more money for you.

FREE TAX PREPARATION IS AVAILABLE!!!

Volunteer Income Tax Assistance (VITA)

Know where the VITA sites are in your area? VITA sites are generally located at community and neighborhood centers, libraries, schools, shopping malls, and other convenient locations. Most locations offer free electronic filing.
To locate the nearest VITA site, call 1-800-829-1040.
Or go to http://www.irs.gov/individuals/article/0,,id=107626,00.html.
VITA sites offer free tax help to low- to moderate-income ($38,000 and below for the 2006 tax filing season). Volunteers sponsored by various organizations receive training to help prepare basic tax returns in communities across the country. The IRS also supplies the software and a link so that returns can be e-filed the same day. Filers who have current accounts and use the electronic option receive their refunds in about a week. The IRS web site also includes links to materials, forms, hints on avoiding common errors, and other useful information.

1. Remember State Taxes too. Call your State Tax Department. State tax law can include variables that Federal tax law does not. See the 2006 Winter EQUITY Feature Article for examples
2. Remember other taxes are relevant- not just disability specific tax incentives. Poverty is also relevant (Earned Income Tax Credit) as well as other subgroups like veterans.
3. Remember tax returns are confidential. You can choose whether or not to disclose you disability- that is your right. Your employer will not find out, nor will your insurance company. Weigh the risks between the value of disclosing (in some cases, itemizing medical expenses and other disability-related allowed expenses is better than the standard deduction) versus your privacy.