Underwithholding

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 ?
Furthermore, evidence since the OTA data were prepared indicates that underwithholding occurred when the new tax tables were initially put into effect on January 1, 1987.
withholding agents making payments to foreign partnerships must exercise due diligence with respect to payments of amounts subject to NRA withholding, or face potential liability for underwithholding and related interest and penalties.
Plan administrators may be subject to penalties for underwithholding if the mandatory 20% is not withheld from eligible roll-over distributions.
NRAs cannot use the standard deduction and are entitled to only one personal exemption, so that ordinary income tax withholding may result in underwithholding.
Professional accountants and tax preparers should review their clients' situations now and where necessary advise taxpayers to take steps to avoid serious underwithholding.
You may also want to check with your tax advisor to determine if you are at risk for an unexpected tax bill or penalty for underwithholding related to the income generated by the withdrawal.
Amounts credited to the account during the grace period are treated as owned by a foreign payee, and adjustments must be made to correct any underwithholding tax on those amounts as described in Rags.
Also, the court noted that the Senate Committee report on the enactment of section 3402(o) in 1969 indicated that withholding had been deemed necessary because SUBs had not otherwise been considered wages subject to with holding but were taxable income to their recipients, causing underwithholding problems for taxpayers.
The IRS has stated that it intends to review 1991 returns and inform those taxpayers that may be exposed to underwithholding.
Overwithholding results when taxpayers who itemize their deductions do not request enough exemptions for withholding purposes; underwithholding results when taxpayers claim too many exemptions.
Failure to implement federal and state payroll laws can put business owners at risk for over- or underwithholding income tax, underpaying state unemployment taxes, erroneously ceasing child support withholding, or incorrectly calculating fringe benefits.
The employer must provide the employee and the SSA with a Form W-2c reflecting additional wages for the year in which the underwithholding occurred.