# Tax withholding

Part of a series on :
Taxation :
An aspect of fiscal policy :
Policies
Economic justice
Government revenue
Property tax equalization
Tax revenue
Non-tax revenue
Tax law
Tax bracket
Flat tax
Tax threshold
Taxation as theft
Tax shift
Tax cut
Tax advantage
Tax incentive
Tax reform
Tax harmonization
Tax competition
Double taxation
Representation
Medical savings account :
Economics
General Theory
Price effect
Excess burden
Tax incidence
Laffer curve
Optimal tax
Fiscal illusion
Theories
Optimal capital income taxation
Distribution of Tax
Tax rate
Flat
Progressive
Regressive
Proportional :
Collection
Revenue service
Revenue stamp
Tax assessment
Taxable income
Tax lien
Tax refund
Tax shield
Tax residence
Tax preparation
Tax protester
Tax investigation
Tax collector
Tax withholding
Private tax collection :
Noncompliance
Legal tax avoidance
Base erosion and profit shifting (BEPS)
Double Irish
Single Malt
CAIA
Dutch Sandwich
Tax credit
Tax deduction
Tax exemption
Taxpayer groups
Tax holiday
Tax inversion
Tax farming
Repatriation tax avoidance
Tax patent
Tax shelter
Illegal tax evasion
Tax amnesty
Black market
Debtors' prison
Tax exile
Smuggling
Tax resistance
Transfer mispricing
Unreported employment
Locations
Tax havens
Corporate havens
Offshore financial centres (OFCs)
Offshore magic circle
Conduit and sink OFCs
Financial centres
Financial Secrecy Index
Major examples
Ireland as a tax haven
Ireland v. Commission
Leprechaun economics
Liechtenstein tax affair
Luxembourg Leaks
Offshore Leaks
Paradise Papers
Panama Papers
Swiss Leaks
United States as a tax haven
Panama as a tax haven :
Types
Direct
Indirect
Per unit
Ad valorem
Aviation
Airport improvement
Landing
Solidarity
Capital gains
Expatriation
Consumption
Departure
Hotel
Sales
Stamp
Television
Tourist
Value-added
Dividend
Environmental tax
Carbon
Eco-tariff
Landfill
Natural resources consumption
Severance
Steering
Stumpage
Excise
Alcohol
Cigarette
Fat
Meat
Sin
Sugary drink
Tobacco
General
Georgist
Gift
Gross receipts
Hypothecated
Income
Inheritance (estate)
Land value
Luxury
Payroll
Pigouvian
Property
Resource rent
Single
Surtax
Turnover
Use
User charge/fee
Congestion
Fuel
Road/GNSS
Toll
Vehicle miles traveled
Corporate profit
Excess profits
Windfall
Negative (income)
Wealth :
International
Financial transaction tax
ATTAC
Currency transaction tax
European Union Common Consolidated Corporate Tax Base (CCCTB)
Global minimum corporate tax rate
Robin Hood tax
Tobin tax
Spahn tax
Tax equalization
Tax treaty
Exchange of Information
Permanent establishment
Transfer pricing
European Union FTT
Foreign revenue rule :
Trade
Custom
Duty
Tariff
Import
Export
Tariff war
Free trade
Free-trade zone
Trade agreement
ATA Carnet :
Research
Academic
Mihir A. Desai
Dhammika Dharmapala
James R. Hines Jr.
Ronen Palan
Joel Slemrod
Gabriel Zucman
Advocacy groups
Institute on Taxation and Economic Policy (ITEP)
Oxfam (UK)
Tax Foundation (US)
Tax Justice Network (TJN)
Tax Policy Center (US) :
Religious
Church tax
Eight per thousand
Teind
Tithe
Fiscus Judaicus
Leibzoll
Temple tax
Tolerance tax
Jizya
Kharaj
Khums
Nisab
Zakat :
By country
All Countries
List of countries by tax rates
Tax revenue to GDP ratio
Tax rates in Europe
Individual Countries
Albania
Algeria
Argentina
Armenia
Australia
Azerbaijan
Bangladesh
Bhutan
Brazil
Bulgaria
BVI
Canada
China
Colombia
Croatia
Denmark
Finland
France
Germany
Greece
Hong Kong
Iceland
India
Indonesia
Iran
Ireland
Israel
Italy
Japan
Kazakhstan
Lithuania
Malta
Morocco
Namibia
Netherlands
New Zealand
Norway
Pakistan
Palestine
Peru
Philippines
Poland
Portugal
Russia
South Africa
Sri Lanka
Sweden
Switzerland
Taiwan
Tanzania
United Arab Emirates
United Kingdom
United States
Uruguay :
Business portal
Money portal :
vte :
Tax withholding, also known as tax retention, pay-as-you-earn tax or tax deduction at source, is income tax 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, tax withholding applies to employment income. Many jurisdictions also require withholding taxes on payments of interest or dividends. In most jurisdictions, there are additional tax withholding 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 tax withholding as a means to combat tax evasion, and sometimes impose additional tax withholding requirements if the recipient has been delinquent in filing tax returns, or in industries where tax evasion is perceived to be common.
Typically, the withheld 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 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 tax withheld. In some cases, the withheld 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 tax withheld on income payments other than employment income is usually a fixed percentage. In the case of employment income, the amount of withheld tax is often based on an estimate of the employee's final tax liability, determined either by the employee or by the government.

## Basics

Some governments have written laws that require taxes to be paid before the money can be spent for any other purpose. This ensures the taxes will be paid first and will be paid on time, rather than risk the possibility that the tax-payer might default at the time when tax falls due in arrears.
Typically, withholding is required to be done by the employer of someone else, taking the tax payment funds out of the employee or contractor's salary or wages. The withheld taxes are then paid by the employer to the government body that requires payment, and applied to the account of the employee, if applicable. The employee may also be required by the government to file a tax return self-assessing one's tax and reporting withheld payments.

## Income taxes
### Wage withholding

Most developed countries operate a wage withholding tax system. In some countries, subnational governments require wage withholding so that both national and subnational taxes may be withheld. In the U.S., Canada, and others, the federal and most state or provincial governments, as well as some local governments, require such withholding for income taxes on payments by employers to employees. Income tax for the individual for the year is generally determined upon filing a tax return after the end of the year.
The amount withheld and paid by the employer to the government is applied as a prepayment of income taxes and is refundable if it exceeds the income tax liability determined on filing the tax return. In such systems, the employee generally must make a representation to the employer regarding factors that would influence the amount withheld. Generally, the tax authorities publish guidelines for employers to use in determining the amount of income tax to withhold from wages.
The United Kingdom and certain other jurisdictions operate a withholding tax system known as pay-as-you-earn (PAYE), although the term "withholding tax" is not commonly used in the UK. Unlike many other withholding tax systems, PAYE systems generally aim to collect all of an employee's tax liability through the withholding tax system, making an end of year tax return redundant. However, taxpayers with more complicated tax affairs must file tax returns.
Australia operates a pay-as-you-go (PAYG) system, which is similar to PAYE. The system applies only at the federal level, as the individual states do not collect income taxes.

### Other domestic withholding

Some systems require that income taxes be withheld from certain payments other than wages made to domestic persons. Ireland requires withholding of tax on payments of interest on deposits by banks and building societies to individuals. The U.S. requires payers of dividends, interest, and other "reportable payments" to individuals to withhold tax on such payments in certain circumstances. Australia requires payers of interest, dividends and other payments to withhold an amount when the payee does not provide a tax file number or Australian Business Number to the payer. India enforces withholding tax also on payments between companies and not just from companies to individuals, under the Tax Deducted at Source (TDS) system. (Since April 2016, the United Kingdom has discontinued withholding tax on interest and dividends, though in some cases this income will become liable for taxation through other means). Rwanda charges withholding tax on business payments unless the paying company obtains proof that the recipient is registered with the tax administration and that they have a recent income tax declaration.

## Social insurance taxes (social security)

Many countries (and/or subdivisions thereof) have social insurance systems that require payment of taxes for retirement annuities and medical coverage for retirees. Most such systems require that employers pay a tax to cover such benefits. Some systems also require that employees pay such taxes.
Where the employees are required to pay the tax, it is generally withheld from the payment of wages and paid by the employer to the government. Social insurance tax rates may be different for employers than for employees. Most systems provide an upper limit on the amount of wages subject to social insurance taxes.

## International withholding

Most countries require payers of interest, dividends and royalties to non-resident payees (generally, if a non-domestic postal address is in the payer's records) withhold from such payment an amount at a specific rate. Payments of rent may also be subject to withholding tax or may be taxed as business income. The amounts may vary by type of income. A few jurisdictions treat fees paid for technical consulting services as royalties subject to withholding of tax. Income tax treaties may reduce the amount of tax for particular types of income paid from one country to residents of the other country.
Some countries require withholding by the purchaser of real property. The U.S. imposes a 15% withholding tax on the amount realized in connection with the sale of a U.S. real property interest unless advance IRS approval is obtained for a lower rate. Canada imposes similar rules for 25% withholding, and withholding on sale of business real property is 50% of the price but may be reduced on application.
The European Union has issued directives prohibiting taxation on companies by one member state of dividends from subsidiaries in other member state, except in some cases, interest on debt obligations, or royalties received by a resident of another member nation.
Procedures vary for obtaining reduced withholding tax under income tax treaties. Procedures for recovery of excess amounts withheld vary by jurisdiction. In some, recovery is made by filing a tax return for the year in which the income was received. Time limits for recovery vary greatly.
Taxes withheld may be eligible for a foreign tax credit in the payee's home country.

## Remittance to tax authorities

Most withholding tax systems require withheld taxes to be remitted to tax authorities within specified time limits, which time limits may vary with the withheld amount. Remittance by electronic funds transfer may be required or preferred.
Penalties for delay or failure to remit withheld taxes to tax authorities can be severe. The sums withheld by a business is regarded as a debt to the tax authority, so that on bankruptcy of the business the tax authority stands as an unsecured creditor; however, sometimes the tax authority has legislative priority over other creditors.

## Reporting

Nearly all systems imposing withholding tax requirements also require reporting of amounts withheld in a specified manner. Copies of such reporting are usually required to be provided to both the person on whom the tax is imposed and to the levying government. Reporting is generally required annually for amounts withheld with respect to wages. Reporting requirements for other payments vary, with some jurisdictions requiring annual reporting and others requiring reporting within a specified period after the withholding occurs.