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.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
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As a result, if the current W-4 were used, many independent contractors would be significantly over-withheld.
A major drawback of withholding on gross receipts is that those receipts may not be an accurate indicator of net income and, therefore, taxpayers may be grossly under-withheld or over-withheld. However, if policymakers can assume a fixed net profit ratio, then net business income is easy to estimate: it is simply the assumed profit ratio multiplied by gross receipts.
"This will provide (Americans) with certainty so they are neither over-withheld or under-withheld," Treasury Secretary Steven Mnuchin said Thursday.
If you've over-withheld (i.e., if you extended an interest-free loan to the federal government), you will get a refund.
Literally millions of low-income individuals would no longer have to file tax returns simply to recover over-withheld taxes.
A person responsible for collecting and paying over-withheld employee income tax, FICA or collected excise taxes who willfully fails to do so is personally liable for penalties.