withholding tax

noun

Definition of withholding tax

: a deduction (as from wages, fees, or dividends) levied at a source of income as advance payment on income tax

Examples of withholding tax in a Sentence

Recent Examples on the Web

Some big states, including California, don’t withhold taxes from lottery winnings, and some like Texas don’t have individual income taxes at all. — Scott Mcfetridge, The Seattle Times, "What happens if you win Mega Millions’ $1.6B jackpot?," 22 Oct. 2018 On May 27, Comptroller Thomas Shack’s office took control of payroll for the State Police Troop F unit, which patrols Logan Airport, and started withholding taxes from the commuting benefit. — Kay Lazar, BostonGlobe.com, "How many state employees get tax-free perks? Officials are on a hunt to find out," 4 June 2018 June 2018 had one less Thursday than did June 2017, which the Treasury says depressed withheld taxes collected last month from individuals. — Richard Rubin, WSJ, "U.S. Government Revenues Drop in Wake of Tax Cuts," 12 July 2018 The tax agency historically has not gone after individual workers if their employer was at fault for not withholding taxes, specialists said. — Kay Lazar, BostonGlobe.com, "How many state employees get tax-free perks? Officials are on a hunt to find out," 4 June 2018 For instance, if one spouse withholds taxes but the other pays, does filing separately at year's end afford any layer of protection to the paying spouse? — Liz Weston, OregonLive.com, "Liz Weston: Refusing to pay is not the way to protest your taxes," 7 Jan. 2018 The comptroller’s office began withholding tax revenues from Harvey in February, as is required by law, after its police pension fund certified that the city was late in its pension payments. — Zak Koeske, Daily Southtown, "State legislators pounce on Harvey's pension woes to push reform," 17 Apr. 2018 To put tax cuts into workers’ pockets faster, U.S. officials have revised the tables that employers use to withhold taxes from paychecks. — Laura Saunders, WSJ, "Last-Minute Tips as Tax Day Approaches," 30 Mar. 2018 That’s because paying the tax man as a gig worker isn’t as simple as for employees, whose bosses withhold taxes from their paychecks. — Aimee Picchi, USA TODAY, "Making money in the gig economy? Avoid these 5 tax mistakes," 4 Apr. 2018

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'withholding tax.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

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Last Updated

26 Apr 2019

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The first known use of withholding tax was in 1940

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More Definitions for withholding tax

withholding tax

noun

Financial Definition of withholding tax

What It Is

Withholding tax is an amount that employers withhold from an employee's paycheck and remit to local and federal taxing authorities on behalf of the employee.

How It Works

For example, let's say John Doe's salary is $24,000 a year. Though he makes $2,000 a month, he only brings home, say, $1,800 because his employer takes $200 out of his paycheck and remits it to the state and the federal government on his behalf. The payments go toward John Doe's federal income tax, state income tax, unemployment, and Medicare liabilities.

The amount of withholding is influenced by what John Doe puts on his IRS Form W-4 ("Employee's Withholding Allowance 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.

Withholding tax applies to income earned through wages, pensions, bonuses, commissions, and gambling winnings. Dividends and capital gains, 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 It Matters

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 steady cash flow throughout the year and reduce the risk that taxpayers will be unable to pay their taxes. A person's tax liability may still be more or less than what he or she pays in withholding taxes in a year. In those cases, the taxpayer may have to pay more money on April 15 or may receive a tax refund. It is important to note that accuracy in payroll is crucial; any mistakes in remitting withholding tax are generally the taxpayer's problem even if they are the employer's fault.

Source: Investing Answers

withholding tax

noun