595, 623 (1982) ("Since the IRS normally computes overwithholding
refunds without interest, the system causes taxpayers to forego the use of their funds during the year without compensation.").
MARK IWRY, USING TAX REFUNDS TO INCREASE SAVINGS AND RETIREMENT SECURITY 9 (2006) ("[A]t least for many households, the current level of withholding is not 'overwithholding
,' but a deliberate method of forced savings."); Block Comments, supra note 16, at 25 (making mention of "the ...
reduces the amount of monthly discretionary cash flow that can be used to meet other financial goals and objectives.
of slightly overwithholding
on wages encourages individual taxpayers to
and overpayment of federal income tax.
is perceived as a gain, and underwithholding is perceived as a loss.
Some of the differences between liabilities and payments may be due to the overwithholding
that reflects the type of withholding.
A taxpayer's view of these costs and benefits depends on enforcement (e.g., penalties, audit likelihood, audit costs imposed on the taxpayer, the public image of the tax agency, etc.), tax rates and their progressivity, and psychological factors, including framing effects from under- or overwithholding
Other mechanisms consumers commonly use that can be characterized as forced savings are the overwithholding
of income taxes to ensure a refund and the accumulation of home equity through mortgage payments and property appreciation.
This behavior is similar to the use of overwithholding
by many middle-income taxpayers as a means of "forced savings" (Barrow & Granahan, 2000; Neumark, 1995).
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
"Causes of Overwithholding
: Forced Savings or Transaction Costs?