Tax Withholding
Amount deducted from employee wages for taxes.
Tax withholding is the portion of employee wages that employers deduct and send directly to the IRS and state tax agencies as prepayment toward the employee's annual tax liability. The amount withheld is based on the employee's W-4 form, filing status, and income level. Employers are also responsible for withholding FICA taxes.
Example
An employee earning $5,000 per month has $750 withheld for federal income tax, $250 for state tax, and $382.50 for FICA—receiving $3,617.50 in net pay.
Why It Matters for Your Business
As an employer, you're legally responsible for accurate withholding and timely deposits—errors or delays can result in trust fund penalties that attach to you personally.
Related Terms
More Taxes Terms
Adjusted Gross Income
Gross income minus specific deductions like retirement contributions.
Tax Audit
An examination of tax returns by the IRS to verify accuracy.
Capital Gains
Profit from selling an asset for more than its purchase price.
Capital Loss
Loss from selling an asset for less than its purchase price.
Tax Deduction
An expense that reduces taxable income.
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