Resources ❯ Accounting Terms

Withholding Allowance

[with-HOLD-ing uh-LOW-uhns]

What is the definition of Withholding Allowance?

A withholding allowance is an exemption that reduces the amount of income tax withheld from an individual's wages, based on factors such as marital status, number of dependents, and anticipated tax deductions and credits. Taxpayers can claim withholding allowances by completing Form W-4 and submitting it to their employer.

Using Withholding Allowance in an Example

When starting a new job, an employee can claim multiple withholding allowances on Form W-4 if they have several dependents, which will reduce the amount of federal income tax withheld from their paycheck, thereby increasing their take-home pay.

Using Withholding Allowance in a sentence

John updated his withholding allowance on his W-4 form after the birth of his twin daughters to ensure less tax was taken from his salary, helping to cover the increased expenses at home.

Related Terms

Wage

Payment for labor or services typically calculated on an hourly, daily, or piecework basis, usually paid at regular intervals such as weekly or bi-weekly.

Walkthroughs

A method used by auditors to confirm their understanding of how internal control over financial reporting is designed and operates, by observing personnel, reviewing relevant documents, and tracing transactions from origination through the company's information systems up to their reflection in the financial reports.

Warrant

A security issued by a corporation that gives the holder the right to purchase a specific amount of stock at a specified price within a certain time frame. Warrants are similar to call options but are issued directly by the company and have longer durations.

Wash Sale

A wash sale occurs when an investor sells a stock or security at a loss and then purchases substantially identical stock or securities within 30 days before or after the sale. Losses from such sales are not deductible for tax purposes. However, the disallowed loss adds to the basis of the newly acquired stock or securities, thus adjusting the cost basis for future gain or loss calculations.

Weighted-Average-Cost Method

An inventory costing method used under the periodic inventory system that calculates the cost of ending inventory and the cost of goods sold based on the weighted average cost of all items available for sale during the period.

Wholesale

The sale of goods in large quantities, typically to a retailer or intermediary, who then sells the items to the end consumer.

Wholesaler

A middleman or distributor who primarily sells products to retailers, other merchants, and industrial, commercial, and institutional users, rather than directly to consumers.

With Recourse

A term used to describe an agreement where a seller retains the liability and responsibility to handle any losses or uncollectible accounts resulting from a transaction.

Withholding

The act of deducting or retaining a portion of an individual's income, typically by an employer, to cover potential tax liabilities or other statutory obligations. In the context of securities, it refers to the illegal retention of shares from a public offering to profit from selling them at a higher market price.

Without Recourse

A term used in finance to indicate that the seller or holder of a financial instrument is not liable for any defaults or non-payment by the debtor or issuer of the instrument.

Work in Progress

An inventory account representing the costs of incomplete goods that are still in the process of being manufactured or produced.

Working Capital

The excess of current assets over current liabilities, indicating the short-term financial health and operational efficiency of a company.

Working Interest

A type of investment in oil and gas operations where the investor has direct participation and unlimited liability, as opposed to passive limited partnership shares.

Working Papers

Records maintained by auditors that document the procedures applied, tests performed, information obtained, and conclusions reached during the course of an audit.

Worksheet

A document or form used in accounting as a preliminary step for organizing, summarizing, and preparing financial statements and data.

Wrap-Around Mortgage

A type of secondary financing for the purchase of real property that encompasses an existing mortgage while creating a new one. The new mortgage is larger, covering not only the remaining balance of the original mortgage but also the additional amount required by the borrower.

Write Off

The process of charging an asset account to expense or loss, often due to the asset's impairment or irrecoverability.

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