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.

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.
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In the NIPAs, advance refunds are treated as a "special factor"; they are considered early settlements for overwithheld income tax payments that result from retroactive tax law changes.
But Amoco did not correct the overwithheld amounts with the IRS except for filing an information return showing an overpayment of the tax.
One predominating factor has justified the release of modified tax withholding tables: under the old withholding system, millions of Americans were overwithheld and ended up giving the government, in effect, an interest free loan annually.
(10) However, if a nonresident alien wants to obtain a refund of overwithheld taxes, to satisfy additional withholding at source, or to claim income exempt or partly exempt by treaty, he or she must file a tax return even if, because of low taxable income, a return is not required.
However, taxpayers who itemize their deductions may be overwithheld if they underestimate the number of additional withholding allowances that are necessary to offset the excess of their estimated itemized deductions over the standard deduction.(5) The second assumption is that each taxpayer's wages are constant throughout the year, so overwithholding may result if wages vary widely within the year and are therefore subject to varying withholding rates.
Taxes overwithheld in response to concern about Rev.
These new tables compensate for the fact that millions of Americans are currently overwithheld and end up giving the government an interest-free loan each year.