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Large tax
refund is
gov't loan
BLACKSBURG — You may think getting a large tax refund every spring is a true blessing, but did you know that you were giving the IRS a gift of its own?
By claiming fewer exemptions than members in the family, or simply by having too much withheld from your paycheck, you are getting back a refund — but it’s a sum that comes without interest.
“Essentially you’re giving the government an interest-free loan for the entire year” said Elaine Scott, Extension family finance specialist at Virginia Tech. “And no one wants to give Uncle Sam an interest-free loan.”
If you’re getting back more than $300 a year, you should go ahead and modify your exemptions by filing a new W-4 form, Scott suggested. Additional W-4 forms usually can be obtained from your employer.
Unfortunately, the worksheet that is attached to the W-4 form usually overestimates or underestimates your tax liability. (It does, however, act as a safety cushion against penalties from the IRS, so that even if you were to withhold too much or too little, keeping the worksheet will prevent the IRS from penalizing you, Scott said. You still may have to pay the tax owed, but there would be no penalty.)
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