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Terms and Definitions

What is Withholding Tax?

Updated: February 18, 2022

Withholding tax definition and meaning

The amount of income taxes that an employer is required by law to withhold when paying an individual employee their wages. The amount withheld is a credit against the amount of income taxes that the employee will owe for the taxable year, which includes federal (and typically state) income tax, as well as Social Security and Medicare.

 

More about withholding tax

Employers are legally required to file and remit payroll taxes, but it’s the employees who pay the majority of these taxes, through money withheld from their paychecks by their employers. Those withheld tax payments are then deposited with federal and applicable state and sometimes local entities.

 

Employers may conduct business in multiple states, as well as have employees who live or perform work across state lines. This can complicate an employer’s task of filing and paying the correct state taxes, as well as any county, city, or local payroll taxes due.

Using withholding tax in a sentence

“You may not like withholding tax, but it’s the easiest way to avoid paying a lot of taxes next April.”

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