Withholding Tax in the United States

Withholding Tax Definition

Withholding tax may be defined as the amount of tax retained by one person when making payments to another person in respect of goods supplied or services rendered. It is not a tax but a means of collecting taxes, specially in the case of employees. The withholding tax done is deductible from a payment by the person who is liable to make the tax payment. See also other definitions of Withholding Tax in the Dictionary of Law Terms.

In the European Union, withholding tax upon distributions made by an european resident subsidiary company to its parent in another EU Member State, with some conditions, is prohibited under EU legislation.

Tax Withholding Calculator

In many countries (like Australia), tax withholding calculators and other similar tools takes into account the income tax rates, levies, schemes, residency statuts, thresholds and other circumstances.

In the United States, the IRS Withholding Calculator is applicable to employees. In special to the following employees:

• who would like to change their withholding to reduce their tax refund or their balance due; or
• whose situations are only approximated by the worksheets on the paper W-4 (e.g., anyone with concurrent jobs, or couples in which both are employed; those entitled to file as Head of Household; and those with several children eligible for the Child Tax Credit); or
•with non-wage income in excess of their adjustments and deductions, who would prefer to have tax on that income withheld from their paychecks rather than make periodic separate payments through the estimated tax procedures.

This feature help employees to determine whether they need to give their employers a new Form W-4, Employee’s Withholding Allowance Certificate to avoid having too much or too little Federal income tax withheld from the payment of the employees.

W-4 Withholding Certificate

Taxpayers should review their W-4 Withholding Certificate every year to ensure that the proper amount of withholding is being deducted. Taxpayers can change the amount of withholding by completing and submitting a new W-4 Withholding Certificate to Payroll Services. The tax status (married or single) of the taxpayer, and their number of withholding allowances appear on their pay stub/earnings statement each pay period. To help fill out the W-4 form, the taxpayers can use their your results from the IRS Tax Withholding Calculator (see above).

Individual Withholding Tax Debate

According to the Liability Memorandum of the Family Guards, “the term “individual,” as used in 26 U.S.C. § 1, takes on contextual vagary because of peculiarities of Subtitles A, B & C. The person subject to the tax, i.e., the nonresident alien individual or foreign juristic entity, is not the person liable for keeping books and records, filing returns and paying the tax. As previously demonstrated, the withholding agent (26 U.S.C. §§ 1441 et seq.) is liable for withholding tax on items of income for purposes of Subtitle A where the employer agency by way of a designated officer is liable for Chapter 24 employment taxes withheld from wages at the source (26 U.S.C. §§ 3401 et seq.).
The OMB number for 26 CFR § 1.6091-3 corresponds with the Form 1040NR tax return, which is a return filed by or for nonresident aliens with income from sources within the United States other than income derived from United States trade or business. Other than that, withholding agents and responsible government agency officers are the persons liable for keeping books and records, withholding at the source, filing returns and paying the normal tax. Domestic corporations, partnerships and other juristic entities that receive items of income from sources listed in 26 CFR § 1.861-8(f)(1) are also required to file applicable returns and pay the prescribed tax.

In summary, nonresident aliens and foreign juristic entities are subject to the normal tax imposed by Chapter 1 and other income taxes included in Subtitles A & B of the Internal Revenue Code when income is derived from sources within the United States. Under authority of Chapter 24, withholding at the source from wages derived from government employment is also applicable to nonresident aliens and foreign juristic entities as it is the Chapter 1 normal tax that is actually withheld. The Chapter 3 withholding agent, although an employer may operate in a dual capacity, does not withhold from wages, as such, where the government agency authorized under Chapter 24 to withhold from wages does not generally withhold from income other than wages. The withholding agent and the designated agency officer are the persons liable for the tax whether those subject to the tax pay it or not.

Citizens and residents of the United States are not liable for the Chapter 1 normal tax from sources within the United States regardless of the activity or enterprise that might be included in the 26 U.S.C. § 61 list of income items and activities unless the person is authorized to serve as a withholding agent or serves as the responsible officer for a government agency authorized by the Treasury Financial Management Service to withhold at the source. Likewise, Chapter 3 withholding agents must be certified or otherwise submit qualifying forms. See 26 CFR § 1.1441-1effective January 1, 2001.

Withholding agents and designated government agency officers are liable for withholding at the source, keeping books and records, filing returns and paying accrued liabilities withheld at the source under authority of Chapters 3 & 24 of the Internal Revenue Code. The payee or employee is not generally required to keep books and records and file returns except in unusual situations where he or she might not be able to resolve the matter with a single withholding agent or employer. Whether the withholding agent or agency officer responsible for withholding withholds sufficient tax from payees and employees or not, the withholding agent or government employer is liable for making full payment of tax principal, interest and penalties.

There are no 26 CFR Part 1 or 31 regulations for notices of deficiency, notices of lien, notices of levy, notices of seizure, audits, summonses or other adverse administrative action arising out of Subtitle F of the Internal Revenue Code. In general, implementing regulations for these Code sections are in 27 CFR § 70, which is under administrative authority of the Bureau of Alcohol, Tobacco and Firearms.

There is no evidence that internal revenue districts within the scope of Internal Revenue Service subject matter jurisdiction have been established in States of the Union under authority of 26 U.S.C. § 7621 and Executive Order 10289, as amended. Without internal revenue districts within IRS subject matter jurisdiction having been established, IRS personnel are precluded from directly engaging in administrative collection activity in States of the Union by 4 U.S.C. § 72.

The Chapter 1 normal tax, i.e., income tax, issues against profits and gains from capital, from labor, or from both, but does not apply directly to capital, labor or compensation.”

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