Underwithholding

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Underwithholding

When a taxpayer has withheld too little tax from salary and will therefore owe tax when filing a return.

Underwithholding

A situation in which an employer withholds too little from an employee's paycheck; that is, the employer gives too little of the employee's wages or salary to the tax agency. This occurs when the employee makes enough to qualify for a higher tax bracket that the one used for the paycheck. Underwithholding results in the employee owing taxes at the end of the year.
References in periodicals archive ?
Therefore, an underwithheld taxpayer can lessen or eliminate the penalty for underpayment/underestimation by withholding substantially more at the end of the year.
The withholding agent is secondarily liable for any underwithheld tax.
Others may need to file new Form W-4s in order to avoid being underwithheld.
For some employees, the increase in take-home pay for the balance of the year will be far greater than the allowable MWPC; therefore, the amount will be underwithheld unless they file new Form W-4s.
Taxpayers with relatively simple tax situations may find that their Federal income tax will be underwithheld by their employer(s) for 1994 resulting in a balance due on their 1994 returns early in 1995.
If the fiduciary determines that tax was underwithheld under Sec.
No penalties are imposed for failure to withhold and deposit the tax, if the estimate was reasonable and the trust pays the underwithheld amount for the applicable tax year on or before the Form 1042 due date.
If the trust pays the underwithheld amount, it will not be treated as additional income to the foreign beneficiary subject to additional withholding, unless the amount is income because of a contractual arrangement between the fiduciary and beneficiary regarding the satisfaction of the beneficiary's tax liability.
While this has no effect on the single taxpayer, a married couple may easily be underwithheld if their combined income is more than $250,000 but neither makes more than $200,000 individually.
As a technical matter, the employer should pay the amount of federal income tax that was underwithheld.
Source Income of Foreign Persons, to report and pay any underwithheld tax (including interest and penalties) that the Service determines is due after the filing of the QI's Form 1042 for the calendar year in which the tax was underwithheld.
If the withholding agent presumes the payee is a foreign person, the agent must adjust to correct the underwithheld amount credited during the grace period.