 |
| Image: Moneybestpal.com |
Withholding tax is a type of income tax that is deducted from your salary or wages by your employer before you receive your pay. Pay-as-you-earn (PAYE) tax or payroll tax are other names for it. Instead of waiting until the end of the year to submit a tax return and make a lump sum payment, withholding tax is meant to make sure you pay your fair amount of income tax throughout the year.
The amount of withholding tax that is withheld from your salary depends on a variety of variables, including your income level, filing status, the number of dependents or allowances you have, and any other deductions or credits you may be eligible for. To calculate how much withholding tax to deduct from your paycheck, your employer will utilize a form called the W-4. This form can be completed when you start new employment or when your financial or personal status changes.
The amount of withholding tax that is taken out of your paycheck does not always equal the total amount of income tax that you owe for the year. Based on the details you supply on your W-4 form, an estimate has been made. In order to determine your real income tax liability and compare it to the amount of withholding tax that you paid throughout the year, you must file a tax return by the end of the year. The IRS will reimburse you if you paid more withholding tax than you should have. You must pay the IRS any shortfall if your withholding tax payment was less than what you owe.
There are various circumstances in which you can qualify for a reduced withholding tax or be excluded from paying any at all. Depending on your visa status and place of residence, you can be subject to various regulations and withholding tax rates if you're a nonresident alien, a foreign worker, or a foreign student. Additional exemptions or deductions that lower your taxable income and withholding tax may be available to you. For further details on these scenarios, you should speak with a tax expert or visit the IRS website.
The US income tax system includes withholding tax as a significant component. It makes it easier to make sure you pay your taxes on time and refrain from incurring penalties and interest fees. Additionally, it aids in lowering the expense and administrative burden associated with tax collection for the government. Withholding tax is not a replacement for submitting a tax return, though. To report your earnings and outgoings and to make any necessary claims for refunds or credits, you must still file a tax return each year.
