DECISION PROCESSES 174, 183-84 (1995) (describing the "withholding phenomenon" and that evidence "indicates that underwithholding
has a greater effect on detracting from taxpayer compliance than overwithholding does on enhancing it"); see also Otto H.
"Americans should monitor their tax situation closely this year as the withholding tables are changing and could result in underwithholding
If clients are over- or underwithholding
taxes, you can help them adjust these amounts.
DISCLOSURE OF PRIOR YEARS' UNDERWITHHOLDING
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.
Don't get hit by penalties for underwithholding
. Project your income and expenses for the rest of the year.
The excess payments primarily resulted from increases in withholding rates that were designed to eliminate widespread underwithholding
. The new withholding tables effective for wages paid after January 15, 1972, resulted in overwithholding for wage earners unless they claimed one or more additional withholding allowances to offset the higher rates.(8) However, many wage earners did not claim the additional withholding allowances, so payments greatly exceeded liabilities.
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.
But Democrats argue that new tables could actually enforce "underwithholding
," resulting in Americans getting hit with "whopping" tax bills next year.