Overwithholding


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Overwithholding

Deducting and paying too much tax that may be refunded to the taxpayer or applied against the next period's obligation.

Overwithholding

A situation in which an employer withholds too much money from an employee's paycheck and gives the funds to the tax agency. This occurs when the employee does not make enough to qualify for the tax bracket used on the paycheck, or when the employee takes enough itemized deductions for which the withholding does not account to reduce his/her tax liability. Overwithholding usually results in a tax refund or in the application of the amount to next year's taxation.
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However, as noted earlier, overwithholding on wage and salary income tends to offset much of this shortfall, and the net difference between total payments and total liabilities is smaller than the difference that would be expected by an examination of either withheld income taxes or nonwithheld income taxes.
Overwithholding may also result when withholding for certain payments is based on flat rates rather than on the rates in the withholding tables.
Overwithholding can occur because of the use of withholding for forced savings and the failure to estimate growth in itemized deductions.
The excess payments were largely due to the overwithholding that was built into the withholding tables prior to 1992.
Second, withholding is based on the assumption that wages are constant during the year; when wages vary widely within the year, they will be subject to varying withholding rates, and overwithholding is likely to result.
In general, the payment series differs from the liability series for the following reasons: (1) payment of nonwithheld taxes--quarterly declarations and final payments--and the payment of refunds by the Treasury usually are not made in the period of the corresponding liabilities; (2) changes in withholding rates do not always coincide with changes in liabilities; (3) graduated withholding rates can result in changes in taxes withheld that are different from changes in liabilities if the income flow or deductions change during the tax year; and (4) withholding according to the withholding tables may result in overwithholding for some taxpayers.
For the most part, the evidence (as scant as it is) suggests that RALs exist because taxpayers who have acted in some ways irrationally by overwithholding or failing to claim advanced credits, (138) compound that irrationality by paying high fees to then get access to that money in an expedited fashion.
ILLUSTRATION OMITTED] Danny & Shante Quinzy: OCTOBER the Advice MONEY MANAGEMENT the Action Stop giving Uncle Sam a free ride They made adjustments so that each by overwithholding.
of slightly overwithholding on wages encourages individual taxpayers to
Overwithholding is perceived as a gain, and underwithholding is perceived as a loss.
These issues create a likely potential for overwithholding that should be taken into account in preparing CIT quarterly estimates.
The act also contains a provision to prevent overwithholding with respect to a chain of dividend-equivalent payments, one or more of which is subject to tax.