+1 credit
| Version | Summary | Created by | Modification | Content Size | Created at | Operation |
|---|---|---|---|---|---|---|
| 1 | Vivi Li | -- | 1415 | 2022-10-26 01:47:10 |
Video Upload Options
A withholding tax, or a retention tax, is an income tax to be paid to the government by the payer of the income rather than by the recipient of the income. The tax is thus withheld or deducted from the income due to the recipient. In most jurisdictions, withholding tax applies to employment income. Many jurisdictions also require withholding tax on payments of interest or dividends. In most jurisdictions, there are additional withholding tax obligations if the recipient of the income is resident in a different jurisdiction, and in those circumstances withholding tax sometimes applies to royalties, rent or even the sale of real estate. Governments use withholding tax as a means to combat tax evasion, and sometimes impose additional withholding tax requirements if the recipient has been delinquent in filing tax returns, or in industries where tax evasion is perceived to be common. Typically the withholding tax is treated as a payment on account of the recipient's final tax liability, when the withholding is made in advance. It may be refunded if it is determined, when a tax return is filed, that the recipient's tax liability to the government which received the withholding tax is less than the tax withheld, or additional tax may be due if it is determined that the recipient's tax liability is more than the withholding tax. In some cases the withholding tax is treated as discharging the recipient's tax liability, and no tax return or additional tax is required. Such withholding is known as final withholding. The amount of withholding tax on income payments other than employment income is usually a fixed percentage. In the case of employment income the amount of withholding tax is often based on an estimate of the employee's final tax liability, determined either by the employee or by the government.
References
- See U.S. Internal Revenue Service (IRS) Publication 15, which includes withholding tables for income tax. State requirements vary by state; for an example, see the New York state portal for withholding tax. https://www.irs.gov/pub/irs-pdf/p15.pdf
- See Canada Revenue Agency Publication T4001. Canada Revenue Agency also provides significant online guidance accessible through a web index, including an online payroll tax calculator. http://www.cra-arc.gc.ca/E/pub/tg/t4001/t4001-09e.pdf
- See, e.g., IRS Form W-4. https://www.irs.gov/pub/irs-pdf/fw4.pdf
- See HM Revenue and Customs (HMRC) PAYE for employers: the basics http://www.hmrc.gov.uk/paye/intro/basics.htm
- See the Australian Tax Office's PAYG withholding web page for details and tools. http://www.ato.gov.au/businesses/content.asp?doc=/content/31962.htm&pc=001/003/079/001/004&mnu=&mfp=&st=&cy=1
- See Irish Tax & Customs Deposit Interest Retention Tax. http://www.revenue.ie/en/tax/dirt/index.html
- 26 USC 3406, Backup Withholding. Withholding applies to individuals who have not provided the payee a tax identification number or failed to certify that they are is subject to backup withholding or with respect to whom the IRS has notified the payee that backup withholding applies. The rate of withholding tax is the fourth lowest rate of tax for individuals. https://www.law.cornell.edu/uscode/text/26/3406-
- Dividend Allowance factsheet HMRC, 17 August 2015 https://www.gov.uk/government/publications/dividend-allowance-factsheet/dividend-allowance-factsheet
- "PwC Global Tax Summaries: Rwanda, Corporate – Withholding taxes". 26 July 2018. http://taxsummaries.pwc.com/ID/Rwanda-Corporate-Withholding-taxes.
- See for example 26 USC 3111; ATO Publication 71038, Super: What employers need to know. Some systems, for example, New South Wales, Australia levy a payroll tax independently of a social insurance system. https://www.law.cornell.edu/uscode/text/26/3111-
- See, for example, 26 USC 3102. https://www.law.cornell.edu/uscode/text/26/3102-
- These limits may vary by country and year. For 2009, the U.S. income limit on the retirement portion (6.2%) of social security tax was $106,800, versus $102,000 for 2008, and there was no limit on the medicare portion (1.45%) of the tax; see Publication 15, supra. Canadian wages subject to Canada Pension Plan were limited to $46,390 of the excess over $3,500 for 2009, at a tax rate of 4.95%; see Publication T4001, supra. UK National Insurance contributions are due for earnings above the Earnings Threshold (£110 weekly) up to a limit that varies depending on other coverage. http://www.hmrc.gov.uk/nitables/ca38.pdf
- See, e.g., 26 USC 1441–1446, IRS Publication 515, CRA Publication T4061. https://www.law.cornell.edu/uscode/html/uscode26/usc_sup_01_26_10_A_20_3_30_A.html
- For example, U.S. rules provide that rentals that rise to the level of a trade or business are not subject to withholding taxes, but other rental income may be subject to 30% withholding tax. An election may be available under 26 USC 871(d) or an applicable tax treaty. https://www.law.cornell.edu/uscode/text/26/871-
- 26 USC 897 and 26 USC 1445. The lower rate of withholding is requested by filing IRS Form 8288-B by the sale closing date. https://www.law.cornell.edu/uscode/text/26/897-
- "EUR-Lex - 31990L0435 - EN". https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31990L0435:EN:HTML.
- Llorca, Salvador Trinxet. "Parent Subsidiary. Text and Cases.". https://books.google.com/books?id=t0Z_Jla7D1gC&dq=salvador+trinxet&source=bl&ots=4y2M7NB-c4&sig=xosb_2rlC-Q3B5DuIYCkdsgXezc&hl=es&sa=X&ei=wQFNUPDjI4HQ9ASr_ICoBA&ved=0CD0Q6AEwBTgK.
- "L_2003157EN.01004901.xml". https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32003L0049:en:HTML.
- The U.S. requires remittance electronically within no later than the following business day when the balance of unremitted amounts exceeds $100,000, and other thresholds apply; see IRS Publication 15, supra, p. 23. Canada requires remittance within three business days of the end of the quarter-monthly period in which withholding occurs for Threshold 2 remitters; see CRA Publication T-4001, supra., p. 3.
- Penalties of up to 100% may be assessed against a withholding agent under 26 USC 6672 for intentional failure to withhold and remit. The penalty may be assessed against any person, including a corporate officer or employee, having custody or control of the funds. https://www.law.cornell.edu/uscode/text/26/6672-
- See, for example, IRS Form W-2 and CRA Form T4 with respect to employees, and IRS Form 1042 and CRA Form NR4 with respect to payments to foreign persons.
