What is Underwithholding?
Underwithholding is a situation in which an individual or business does not have enough income tax withheld during the course of the year. This will lead to owing a substantial amount of income taxes when filing the return for the calendar year, which may create a significant financial burden. In addition, underwithholding may also lead to the incurring of penalties from state and national tax revenue agencies that will have to be paid along with the amount of taxes due. When filing taxes, it is usually a good idea to engage in what is known as overwithholding. This approach creates a situation where more funds than necessary are collected for tax purposes. When the tax return for the calendar year is prepared, the end result is that the total tax burden is not only settled, but also exceeded. At this juncture, the entity that received the collected tax revenue is responsible for issuing a refund of all monies collected above and beyond the actual rate of tax. Generally, it is easy to
