Current Events > Explain Withholding when it comes to tax

(+) Yeah! (+)

Or a formula
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Wagecuckoldry.
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You owe tax throughout the year as you earn income. Your withholding goes towards your tax liability as it accrues.

If you don't have withholdings then you have to remit estimated payments quarterly based off your income earned for the period. If you underpay during the year then you could owe penalties and/or interest.
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Instead of paying a portion of your income when taxes are due, your company will estimate how many taxes you would pay based on your income and a few other factors like number of children.

It takes the legwork out of budgetting, so you're not stuck paying $10,000+ when you file your taxes because some people live paycheck to paycheck and this would result in some nasty predatory lending.
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Instead of giving people a tax bill for their total burden at the end of the year, the government takes a small portion of that from your income every week so you aren't hit with the sticker shock of the whole amount at once. Then when you file your taxes, you reconcile the difference between what you paid and what you owe, and the government pays you back, or you pay the difference.

It's also a great way to keep people in the dark as to how much they actually pay in taxes. If there were no withholdings and people just got a bill for five, ten grand at the end of the year, you'd have people in the streets with torches and pitchforks.
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r4X0r posted...

It's also a great way to keep people in the dark as to how much they actually pay in taxes. If there were no withholdings and people just got a bill for five, ten grand at the end of the year, you'd have people in the streets with torches and pitchforks.

This. I do a lot of taxes for business owners, self employed people. They all loathe taxes because they have to cut a check for several thousand every quarter. But most of us have it taken out of our paycheck so it's out sight, out of mind.
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