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Definition of 'Overwithholding'
A generic term referring to an excess amount of tax being withheld for an employee or retirement plan participant throughout the year. Overwithholding can apply to both income and Social Security taxes. Any amount of overwithholding is sent back as a refund to the taxpayer after he or she has filed a return.
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Investopedia explains 'Overwithholding'
Overwithholding is also known as excess withholding. This commonly occurs when there is an overexpectation of your yearly income, which could be caused by large bonuses or above average lump sum payments. Overwithholding of Social Security benefits is refunded back to the taxpayer in the form of a refundable tax credit.
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