Withholding Tax

Category: tax

The portion of an employee’s wages that the employer deducts and pays directly to the government.

Withholding is the "pay-as-you-go" system. Employers act as tax collectors, taking a portion of every paycheck to cover the employee’s estimated federal and state tax liability. This prevents a massive, unpayable bill at the end of the year.

Common Examples

• Our payroll department carefully calculates withholding tax based on the employee’s claimed allowances on their Form W-4.
• If you have consistently insufficient withholding tax, you may face underpayment penalties when filing your final annual return.