DEFINITION of 'Underwithholding'

Inadequate withholding of taxes from wages or other income during the year. Underwithholding will result in a balance due upon filing. Significant underwithholding can result in a nasty surprise for the taxpayer, especially if there is substantial interest and penalties involved. Generally, it is often a good idea to overwithold taxes to avoid a financial surprise at filing time that could become a significant financial burden.

BREAKING DOWN 'Underwithholding'

Some taxpayers deliberately choose to have their taxes underwithheld, for various reasons. Sophisticated taxpayers may be able to invest the amount that would otherwise be withheld more profitably throughout the year and still come out ahead after paying the tax. Others simply may not wish to have the government hold on to their money during the year and keep it in a separate account to earn interest instead.

  1. Overwithholding

    A generic term referring to an excess amount of tax being withheld ...
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  3. Taxes

    An involuntary fee levied on corporations or individuals that ...
  4. Tax Return

    1. The tax form or forms used to file income taxes with the Internal ...
  5. Withholding

    The portion of an employee's wages that is not included in his ...
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    An indicator of a company's profitability, calculated as revenue ...
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