What does it mean to be exempt from withholding Meaning and Definition

Pronunciation

(Not applicable for this term) 🔊

Part of Speech

Noun phrase

Definition

A situation in which an individual or organization is not required to pay taxes on some or all of their income, often due to specific circumstances or conditions.

Examples

• Herman avoided paying taxes on his investment income by being exempt from withholding as a non-resident alien.
• Due to their unique circumstances, the charity was granted exemption from withholding for their fundraising events.

Synonyms

• Waiver
• Exclusion

Antonyms

• Liability
• Obligation

Additional Information

In the United States, the IRS offers various types of exemptions from withholding, such as the foreign earned income exclusion or the foreign housing exclusion. These exemptions can significantly reduce an individual’s tax liability, making it essential to understand the specific rules and eligibility criteria for each type of exemption. Additionally, businesses may also be exempt from withholding taxes on certain transactions, such as international transactions or transactions with sister companies.

The exemption from withholding can have significant implications for financial planning and budgeting, as it can affect both personal and business finances. It is essential to consult with a tax professional to understand the specific rules and regulations that apply to an individual’s or business’s situation.