For return-based taxes, such as individual income tax, a credit balance will be considered an overpayment only once a return is filed. Any payments or credits received in advance of a tax return are not considered overpayments until the tax form is processed, and an assessment is created. If a tax return is not filed, the obligation will be in a credit balance until the tax authority reviews it.
For billing-based taxes, different rules may apply to determine if an obligation is overpaid.
The following are common scenarios that would result in an overpayment:
A majority of taxpayers receive refunds for their individual income tax filing because employer withholding tends to exceed the probable liability.
Recalculation of tax, penalty, interest or fees that results in a reduced liability.
Not all tax types have overpayments. Assessments for sales tax and withholding tax are seldom overpaid because the taxpayer pays for an activity that has already happened. If an overpayment results, it is usually due to a math error on the form.
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