Question

In the U.S. when you are employed, a portion of your income is withheld throughout the year by your employer as required by the Internal Revenue Service (IRS). You may have some flexibility on how much income can be withheld. A psychological advantage of this so-called withholding tax is that the funds are pulled from your income before you receive your paycheck. It is as if that portion of your income was never yours anyway. It may even be more painful to receive all of your income and then have to pay a portion of the income in taxes later.
If you had a choice, would you prefer to have a higher or lower amount of income withheld? Why or why not? Explain your preference. What do you think are the advantages and disadvantages of your preference? Submit at least two paragraphs (5-6 sentences each) in your own words

Answer 1

I will prefer higher Withholding Tax against lower withholding Tax.

Reason behind is that If I prefer higher withholding, my tax liability for the whole year will be devided among my payment cycles throughout the year. Against of this, If I prefer lower withholding Tax, I will have to my tax together at year end.

Advantages of Higher Withholding Tax:

1. I will not have to save money to pay tax at year end.

2. There will be very less chances of Tax evasion from my Part.

Disadvantages of Higher Withholding Tax.

1. I may loose Interest Income on withheld tax.

2. It decreases on hand Income.