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 ?
Americans should monitor their tax situation closely this year as the withholding tables are changing and could result in underwithholding of taxes.
If clients are over- or underwithholding taxes, you can help them adjust these amounts.
Overwithholding is perceived as a gain, and underwithholding is perceived as a loss.
H3: Taxpayers possibly subject to an underwithholding penalty are more likely to participate in an IRA.
But don't forget those safe harbors to avoid interest and penalties for underwithholding.
The excess payments primarily resulted from increases in withholding rates that were designed to eliminate widespread underwithholding.
They also report a withholding phenomenon, namely that behavior differs, depending on a person's tax balance and respective underwithholding with additional payment or overwithholding with returns.
Table 1: 1994 Underwithholding of Federal Income Tax-- Unmarried Taxpayer Claiming Two Withholding Allowances Salary/Wages Underwithholding $50,000 $180 45,000 180 40,000 180 35,000 180 30,000 180 25,000 190 20,000 190 10,000 190 5,000 0 Table 2: 1994 Underwithholding of Federal Income Tax-- Married Couple; One Income, Three Withholding Allowances Salary/Wages Underwithholding $50,000 $370 45,000 370 40,000 370 35,000 370 30,000 370 25,000 370 20,000 370 15,000 370 10,000 0 5,000 0
92-85 does not specify under what circumstances the IRS would so apply that rationale, there may be some degree of exposure to an underwithholding challenge by the IRS in situations where taxpayers do not withhold on the full amount paid pursuant to such a transaction.
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.