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Does this go into the "your giving the government a free loan" category? If so, I'd rather pay the bill when annual taxes are due. Why would I do otherwise?

Yes, it's a free loan, but one required by law. Income tax is a "pay as you go" system, either through withholding or estimated tax payments. Failure to pre-pay enough results in a penalty. Details are in IRS Publication 505 and the FAQ.

I have a feeling you haven't properly digested the W-4 instructions since your OP mentioned 401(k) and pre-tax medical deductions. Those have absolutely nothing to do with figuring your withholding allowances. If you're adding allowances for those deductions you'll likely be underwithheld, perhaps significantly.

Phil

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