55 percent of Americans can't define this key tax term

Chris Haston | NBCU Photo Bank

If you feel confused or overwhelmed during tax season, you're not alone.

According to a new report from NerdWallet, there's a lot of uncertainty when it comes to tax-saving strategies, income tax brackets and the new tax bill in general. And more than half of Americans can't define a key tax term: Form W-4.

"Slightly more Americans can correctly describe a W-4 this year compared to last year, 45 percent versus 40 percent," reports NerdWallet, adding: "Millennials were most likely to incorrectly describe a W-4 this year (63 percent, compared to 54 percent of Gen Xers and 51 percent of baby boomers)."

A W-4 is a form you fill out that tells your employer how much to withhold from your paycheck for taxes. You fill it out when you start a new job and can change it as necessary.

The form asks for the number of allowances you want to claim, since you get an allowance for having a spouse, for example, or having kids, or filing as a head of household. Those allowances affect how much of your paycheck will be set aside for taxes.

In short, the more allowances you have, the less tax will be withheld.

It's important to get the right amount withheld: If you don't withhold enough, you may owe the IRS come tax time, and if you pay too much, you could end up with a large refund, which means you've essentially given an interest-free loan to the government.

When it comes to filling out your W-4, NerdWallet provides a general strategy: "If you got a huge tax bill in April and don't want another, reduce the number of allowances you claim to have your employer withhold more tax from your paychecks so that you owe less (or nothing) next April. If you got a huge refund last year and would rather not have that money withheld throughout the year, do the opposite and reduce your withholding."

It's good practice to review your withholding every year and especially this year, given the new tax rules in place for 2018.

The changes may mean you're taking home a slightly larger paycheck, but you may still want to make sure you aren't withholding too little.

To help you figure out the right amount to deduct under the new legislation, the IRS is working on an updated withholding calculator, which should be completed by the end of February. It's also working on a new Form W-4.

"People with simple financial situations — they've always claimed the standard deduction, they don't have kids or own a home — likely don't need to worry," NerdWallet's tax specialist Andrea Coombes tells CNBC Make It. "But if you have a more complex situation — you have a side gig or you pay more than $10,000 in property and state income taxes each year — then you might want to revisit your withholding allowances, because the new tax rules might affect you unexpectedly."

Read up on which taxpayers are more likely to owe the IRS in 2019 and therefore may need to update their W-4.

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