Withholding is a concept that is used to name the amount that is withheld from a wage or other economic perception to pay a tax or a debt in case of seizure. In other words, withholdings are for the purpose of ensuring the payment of a tax.
In general, it is a percentage of the income of individuals or entities, which are obliged to enter an amount in the Public Treasury as payment of the tax. This concept is used both in accounting as in economics and finance to refer to the part withheld from a salary or income. With the aim of avoiding market distortions or to redistribute wealth, a sector applies these withholdings to take advantage, ultimately, of a country's comparative advantages.
Withholdings are made at bills of natural persons, never of companies and are carried out on account of personal income tax for workers' income. With this, if you are an employed person, the withholdings will be applied in your nómina, while if you are autonomous, they will be carried out on your invoices. In general, the withholding is made on work income, although in some territories it is also applied on other types of income, such as dividends or interest obtained.
As a tax tool for the Treasury, economic withholdings are mainly due to a couple of needs:
- Provide the state coffers with sufficient financial means to guarantee their proper functioning.
- The State ensures that the taxpayer complies with its tax obligations, thus reducing the possibility of tax fraud and increasing collection efficiency.
Withholdings should only be made on invoices from individuals, never from organizations. And it is that the withholdings are carried out on account of the Income Tax of individuals (IRPF) for the income of natural persons. In the case of being an employee or employee, they would retain him from the payroll, while if he were self-employed, that retention would be developed in the invoices.
An example to better understand the definition of withholding is that if you receive an invoice from an advisor, you must make the withholding, but in the case of coming from an advisory created as a company, the personal income tax should not be withheld.