What is Withholding Tax?
Withholding tax, also sometimes referred to as simply "withholding," is an amount that employers withhold from an employee's paycheck and remit to local and federal taxing authorities on behalf of the employee.
Example of Withholding Tax
The amount of withholding is influenced by what John Doe IRS Form W-4 ("Employee's Certificate"), which he provides to the employer and on which he indicates how many dependents he has and his marital status, among other things. A copy goes directly to the IRS. Generally, the more allowances the employee claims on a Form W-4, the lower the withholding tax.on his
Withholding tax applies toearned through wages, pensions, bonuses, commissions, and gambling winnings. Dividends and , for example, are not subject to withholding tax. Self-employed people generally don't pay withholding taxes; they typically make quarterly estimated payments instead.
Why do Withholding Taxes matter?
Withholding tax prevents people from being blindsided by huge tax bills on April 15. By having their employers remit a little out of each paycheck, federal and local governments also ensure steadythroughout the and reduce the risk that be unable to pay their . A person's may still be more or less than what he or she pays in withholding in a . In those cases, the may have to pay more on April 15 or may receive a . It is important to that accuracy in is crucial; any mistakes in remitting withholding are generally the 's problem even if they are the employer's fault.
Personalized Financial Plans for an Uncertain Market
In today’s uncertain market, investors are looking for answers to help them grow and protect their savings. So we partnered with Vanguard Advisers -- one of the most trusted names in finance -- to offer you a financial plan built to withstand a variety of market and economic conditions. A Vanguard advisor will craft your customized plan and then manage your savings, giving you more confidence to help you meet your goals. Click here to get started.
Read This Next
Prepaid cards, also known as reloadable debit cards, have become popular consumer financial products. Accepted everywhere traditional credit and debit cards are taken, prepaids offer access...Read More →
Every parent with more than one child knows that not all kids are created equal. One child may be super responsible, the other carefree; one child may be healthy, one may have a chronic disease;...Read More →
My life changed forever with one call I made from a Washington, D.C., shopping mall in 1996. Unhappy in my reporting job and 2,000 miles away from my girlfriend...Read More →
How often have you heard in your investing lifetime that you should invest in mutual funds instead of individual stocks? Probably...Read More →