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 ...
Overwithholding 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
*
Overwithholding and overpayment of federal income tax.
Overwithholding 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. (8)
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 with returns.
"Causes of
Overwithholding: Forced Savings or Transaction Costs?