Ireland requires withholding of tax on payments of interest on deposits by banks and building societies to individuals. Some systems require that income taxes be withheld from certain payments other than wages made to domestic persons. The system applies only at the federal level, as the individual states do not collect income taxes. However, taxpayers with more complicated tax affairs must file tax returns.Īustralia operates a pay-as-you-go (PAYG) system, which is similar to PAYE. 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. 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. Generally, the tax authorities publish guidelines for employers to use in determining the amount of income tax to withhold from wages. In such systems, the employee generally must make a representation to the employer regarding factors that would influence the amount withheld. 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. Income tax for the individual for the year is generally determined upon filing a tax return after the end of the year. 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. In some countries, subnational governments require wage withholding so that both national and subnational taxes may be withheld. Most developed countries operate a wage withholding tax system. The employee may also be required by the government to file a tax return self-assessing one's tax and reporting withheld payments. 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.
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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. 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. Some governments have written laws that require taxes to be paid before the money can be spent for any other purpose. 3 Social insurance taxes (social security).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.
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The amount of tax withheld on income payments other than employment income is usually a fixed percentage. Such withholding is known as final withholding. In some cases, the withheld tax is treated as discharging the recipient's tax liability, and no tax return or additional tax is required. 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. 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. 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. 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. Many jurisdictions also require withholding taxes on payments of interest or dividends. In most jurisdictions, tax withholding applies to employment income.
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The tax is thus withheld or deducted from the income due to the recipient. Tax withholding, also known as tax retention, Pay-as-You-Go, Pay-as-You-Earn, or a Prélèvement à la source, is income tax paid to the government by the payer of the income rather than by the recipient of the income.