Chapter 26

Tax Withholdings

Withholding taxes gives the Government part of your income before you have a chance to use it. Withholding tax is imposed on salary and wage income, tip income, certain gambling winnings, pensions, and retirement distributions, but you may avoid withholding on retirement payments (26.10). Withholding is also imposed on interest and dividends if you do not give your taxpayer identification number to a payer of interest or dividend income.

You may increase or decrease withholdings on your wages by submitting a new Form W-4 to your employer. Withholdings may be reduced by claiming allowances based on tax deductions and credits.

Make sure that tax withholdings meet or help you meet the estimated tax rules that require withholdings plus estimated tax payments to equal 90% of your current year liability or the required percentage of the prior year’s liability; see Chapter 27.

A 20% withholding rate applies to eligible rollover distributions from an employer retirement plan. You may avoid the withholding by instructing your employer to directly transfer the funds to an IRA or the plan of your new employer (26.10).

26.1 Withholdings Should Cover Estimated Tax

26.2 Income Taxes Withheld on Wages

26.3 Low Earners May Be Exempt From Withholding

26.4 Are You Withholding the Right Amount?

26.5 Voluntary Withholding on Government Payments

26.6 When Tips Are Subject to Withholding

26.7 Withholding on Gambling Winnings

26.8 FICA Withholdings

26.9 Withholding on Retirement Distributions

26.10 Backup Withholding