A portion of an employee's gross income is deducted by employers for tax purposes in the U.S. tax withholding system. Income taxes haven't always been withheld from the source of income at the time of payment, however, and there have been some criticisms of the practice since its inception. Tax withholding has been said to be good for the government and bad for taxpayers but there are both pros and cons.꧃

Benefits of the Tax Withholding System

The tax withholding system was implemented to help the government raise money to finance various wars. The process of collecting taxes at the source does have a few benefits but many are on the government's side rather than that of the taxpayers.

People Don't Notice the Missing Money

People tend to focus on their take-home pay and this makes sense because it's the amount of money they have with which to pay their bills. It may not seem like a significant amount when they look at the tax that's withheld that appears on their pay stubs because it's divided among their paychecks.

Then they see the number for the total amount of federal tax that's been withheld all year on their W-2 Forms and their annual 澳洲幸运5官方开奖结果体彩网:tax returns. And this doesn't show how much they've also paid into 澳洲幸运5官方开奖结果体彩网:Social Security and Medicare. It also doesn't include h🍰ow much their employers have contributed to Social Security and Medicare on t𒁏heir behalf.

No Need to Save Up or Make a Gigantic Payment

Some individuals are bad at saving and wouldn't be able to pay their tax bills if they had to pay them in a lump sum or even in quarterly installments. Americans who live paycheck to paycheck would probably put the money toward their immediate and essential expenses when they're faced with a 澳洲幸运5官方开奖结果体彩网:credit card or util𝔉ity bill that's du💎e now or a tax bill that's months away.

Tax withholding is said to be coꦿnvenient for taxpayers because it alཧlows them to make small, more affordable payments throughout the year. Some people argue that they should be permitted to make the payments themselves, however.

Withholding Decreases Evasion and Underpayment

Withholding makes it more likely that the government will receive all the taxes it's due. It also makes it more difficult for tax protesters and tax evaders to keep their money out of IRS hands.

Withholding Decreases Collection Costs

Most people have all or most of their taxes remitted to the government by their employers so the IRS theoretically has a smaller pool of people to pursue for unpaid or underpaid taxes. F🌼ewer of y♔our tax dollars are needed to fund IRS collection efforts as a result.

Criticisms of the Tax Withholding System

Concerned citizens, politicians, and economists who have anওa🌜lyzed the U.S. tax withholding system have made some criticisms of the process.

Taxpayers Don't Know How Much They Pay

Taxpayers would know exactly how much they were forking over for federal taxes, Social Security taxes, Medicare taxes, and state taxes if they had to make one large payment. Many people never pay attention to the full amount that's withheld because the money is taken gradually, at least until Tax Day arrives and they look at the paperwork to file their returns. 🍎This can mak🍃e it easier for the government to increase and impose high tax rates.

The state of California decided to use its tax withholding system to take a large, interest-free loan from its taxpayers in 2009. It increased the withholding tax by 10% and many citizens didn't seem to notice until the days before the rate hike was implemented.

Contributes to High Levels of Governm🐻ent Spಞending

The government has been known to run significantly large 澳洲幸运5官方开奖结果体彩网:budget deficits. Critics say that taxpayers aren't likely to make the connection between their incomes and the money that's necessary to fund new government programs and expand existing ones because they don't realize how much༒ of their income is going toward them. They're more likely to support bigger programs without understanding that they're also supporting h💖igher taxes.

Taxpayers Think Tax Refunds Are Gifts

Not all taxpayers realize that their tax refunds were their money all along. They simply paid more in taxes through withholding than they h🏅ad to and the IRS is returning their overpayment🍌s to them.

Taxpayers Don't Use Their Refund Money Wisely

It might seem like a good excuse to do some extra spending when your tax refund arrives in a lump sum but you might have been better off keeping that money in increments all along. It's possible to adjust your withholding so you don't receive a large refund. You can use the extra money in each paycheck to help meet your savings goals and pay your necessary expenses throughout the year.

You can't use your earned dollars for consumption today if you already "spent" some of them on future taxes. Taxpayers lose out on the interest they might have earned all year on their tax dollars if they could have saved the money instead until April.

The System Penalizes Wage Earners

Taxes aren't withheld from 澳洲幸运5官方开奖结果体彩网:investment income or self-employment income so the withholding system is said to penalize wage earners or those whose taxes are collected at the source from each paycheck. They have to pay up sooner which means that their opportunity costs from the withho🎀lding system are higher.

The timing gap isn't annual, however. Self-employed independent contractors do have to pay taxes throughout the year. They can't wait until April to pay without accruing significant interest and even penalties. Self-employment taxes are due quarterly, however, not monthly or each pay period.

The System Imposes Costs on Employers

Employers who protested tax withholding in 1913 and got it revoked in 1917 had good points that are still true. Businesses have to hire additional staff to deal with tax withholding and they have to spend time and money on tax compliance♕. That money cou♌ld have been spent on improving their businesses or paying workers more.

The Bottom Line

The U.S. tax withholding system requires that employers deduct a portion of their employees' pay for taxes and send the money to the government on their behalf. Employers must also pay half of an employee’s Social Security and Medicare taxes.

The process ensures that employees pay in enough money so they’re not hit with a huge tax bill come Tax Day, perhaps one that they can’t possibly pay because they've spent the money that wasn’t withheld. And interest and penalties can accrue when their taxes aren’t timely paid.

There remains the possibility that an individual can overpay taxes through withholding, however, and they may not see or appreciate the correlation between their employment income and government spending.