When you start a new job, you have to fill out a huge amount of paperwork, and one important form plays a big role in your tax planning.

In this segment of Industry Focus: Financials, Motley Fool analyst Gaby Lapera talks with Dan Caplinger, a Motley Fool personal finance expert contributor, about IRS Form W-4 and how to set up tax withholding. As Gaby and Dan discuss, getting the form done right will help determine whether you get a refund or owe taxes at the end of the year, and it's especially important to avoid penalties from the IRS.

A full transcript follows the video.

This video was recorded on June 19, 2017.

Gaby Lapera: After talking about your student loans and some tax considerations, we should probably talk about what to do with your brand-new shiny job. Let's talk a little bit about some stuff you need to know about working. Let's start with tax withholding. This is one of the first things you are going to do when you get a job, someone is going to hand you a W-4. Dan, will you tell us what a W-4 is?

Dan Caplinger: That's right. The first day of any new job is incredibly stressful, because there's so many people talking to you, trying to teach you what you need to know for the beginning of your career, handing you all kinds of paperwork. One of the first things you are going to get from the humans resources people at your company is this form, W-4. Basically, what it does is set the foundation for how much, in taxes, you're going to have withheld from each year's paychecks. The reason that's important is, if you don't have enough money withheld from your paycheck, you're going to end up owing taxes at the end of the year, and you can even owe penalties. On the other hand, if you have too much money withheld, your paychecks will be unnecessarily small, and even though you'll get it all back in the form of a really big refund when you file your taxes, you will have essentially given the IRS a free interest-free loan for the whole year. And for someone who's just starting out and needs those paychecks to be as big as possible, that's really not what you want to happen. So, the W-4, there are instructions that will walk you through how you need to fill that out. But basically, what it does is tells your employer how to calculate how much money to have withheld from your paycheck, so that your tax situation works out the way you want it to.

Lapera: Yeah. The place that that money is going, if you're curious, is the federal government, and it's to pay for stuff like Social Security or Medicare. You can actually see it broken out on your paycheck -- or, you should be able to. If you can't, then your HR department is doing something terribly wrong, and maybe you should find another job. Something also to keep in mind is that if you're self-employed these might not 100% apply to you, you're going to have different tax things apply to you. This is something for people who have a job at a company that's going to pay for half of these taxes.

Caplinger: That's a good point, Gaby. If you're self-employed -- that means if you're working not as an employee but as an independent contractor, even if you're doing most of your work for one company -- if you're treated as an independent contractor, they're not going to withhold any taxes whatsoever from your paycheck. It's going to be all up to you to make sure that you pay attention to how much in tax you're going to owe, and then send that to the IRS in the form of quarterly estimated payments. It's only if you are an employee that your employer does this for you automatically with the W-4.

Lapera: Yeah, so definitely keep that in mind. The other thing I wanted to mention is, I actually didn't know this until we went to tape the show -- you cannot claim the same withholding allowances with two employers at the same time. Did you know that, Dan?

Caplinger: Huh, I did not know that.

Lapera: Yeah, according to the IRS website. So, definitely keep that in mind. Also, the other thing to keep in mind is, don't forget to update your W-4 if you've had some sort of life event that would necessitate you to update it. For example, if you got a divorce, you're awfully young, but you're just moving through life a little bit faster than others, I guess, or if you have a child, that's another reason why you might need to update your W-4. Can you think of any other scenarios, Dan?

Caplinger: Keep in mind, this is the sort of thing, if you work for the same company for a long time, you might go years and never see this form again. So, even if you're not thinking about getting married or having a family now, just bury it in the back of your mind that, when that time comes, it's time to take a look at this W-4 again. And you will notice that when you follow the instructions, it will have different ways to fill out the form depending on whether you're married or single, whether you have kids or not. It's designed to be as easy as possible so you don't have to do the math. It leaves it up to your employer to do the math. And when they do, it will adjust to account for your different tax situation as you go through those life events.

Lapera: And the reason you should care about this is, if you do get married or have a kid, there's a lower withholding rate, so you'll get to keep more of your paycheck.