Withholding

AAA

DEFINITION of 'Withholding'

The portion of an employee's wages that is not included in his or her paycheck because it is remitted directly to the federal, state and local tax authorities. Withholding reduces the amount of tax employees must pay when they submit their annual tax returns. The amount withheld is based on the employee's income, marital status, number of dependents and number of jobs. When too much money is withheld, it is returned to the employee as a tax refund.

INVESTOPEDIA EXPLAINS 'Withholding'

In the U.S., the tax authorities require employers to withhold tax from their employees' paychecks because the income tax must be paid throughout the year as income is earned. As an employee, it cannot be paid in one lump sum at the end of the year. Workers who don't pay enough tax on income as it is earned are subject to penalties and interest. Workers who are self-employed aren't subject to withholding, but must make quarterly estimated tax payments instead.

RELATED TERMS
  1. Withholding Allowance

    An allowance an individual claims on a W-4 Form. A withholding ...
  2. W-4 Form

    A form completed by an employee to indicate his or her tax situation ...
  3. Excess Employer Withholding

    When one or more employers withhold more than the aggregate maximum ...
  4. Wage Assignment

    The procedure of taking money directly from an employee's compensation ...
  5. Garnishment

    A legal process whereby payments towards a debt owed by an individual ...
  6. Withholding Tax

    1. Income tax withheld from employees' wages and paid directly ...
RELATED FAQS
  1. What is IRS Form W-2 used for?

    Any employer who pays an employee $600 or more for the year, including noncash forms of remuneration, must file a form W-2 ... Read Full Answer >>
  2. Do I still have to pay penalties and taxes on money that I don't roll over from a ...

    It depends. Let's address the two penalties that will apply - the 10% early-withdrawal penalty and the 20% federal withholding ... Read Full Answer >>
  3. Are the deferred earnings in a SIMPLE IRA subject to FICA taxes?

    While salary deferral contributions to a savings incentive match plan for employees of small employers (SIMPLE) IRAs and ... Read Full Answer >>
  4. How do the C-suite members work together to make a successful company?

    Corporate managers, typically chosen by a board of directors in large organizations, are ultimately responsible to stakeholders ... Read Full Answer >>
  5. What does a merger or acquisition mean for the target company's employees?

    Suppose one sporting goods manufacturer merges with or acquires another sporting goods manufacturer. Before the merger and ... Read Full Answer >>
  6. What is the difference between CI (competitive intelligence) and competitive analysis?

    The difference between competitive intelligence and competitive analysis is that competitive intelligence refers to the understanding ... Read Full Answer >>
Related Articles
  1. Taxes

    5 Smart Ways To Use Your Tax Return

    This year, find out how to stretch your tax refund further to strengthen your future.
  2. Taxes

    3 Common Tax Questions Answered

    We clarify some rules that often puzzle taxpayers.
  3. Personal Finance

    Why Do Employers Have To Fill Out The I-9 Form?

    With all the employment opportunities in the U.S. attracting people from around the world, the I-9 form establishes who is eligible to work here.
  4. Personal Finance

    Employer? Steps To Fill Out Immigration's I-9 Form

    Step-by-step, here's how you and the employee you've hired fill out this required form from the U.S. Citizenship and Immigration Services.
  5. Economics

    Top 10 Cities For Grads To Get Jobs

    A look at latest employment stats.
  6. Investing News

    A New Corporate Governance Initiative In Japan

    Expectations are low that Japan can create a corporate governance climate that meets global standards, but a new initiative is aimed at doing just that.
  7. Investing

    What Tech Companies Seeking Funding Must Overcome

    Tech companies face a unique set of challenges, including a need for timely responses to changes in technology and difficulty recruiting the right talent.
  8. Economics

    Vietnam -- New Asian Hot Spot For Tech Investment

    Vietnam now has a rapidly expanding tech sector that's attracting investors from around the globe due to low business costs and highly skilled workers.
  9. Stock Analysis

    Will American Airlines Fall Back To Earth In 2015?

    The airline industry enjoys blockbuster profits, and American Airlines Group has been a key beneficiary of the favorable trends that have lifted stocks.
  10. Stock Analysis

    3 Things I Learned From The Container Store's 10K

    Since going public at the end of 2013, The Container Store's shares have fallen by roughly half their value. But not all is not lost.

You May Also Like

Hot Definitions
  1. Geometric Mean

    The average of a set of products, the calculation of which is commonly used to determine the performance results of an investment ...
  2. Fisher Effect

    An economic theory proposed by economist Irving Fisher that describes the relationship between inflation and both real and ...
  3. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  4. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  5. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  6. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
Trading Center