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Withholding

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Withholding refers to the deduction of payroll taxes from an employee's paycheck in order to pay income taxes, Social Security, Medicare, and other taxes owed. The IRS requires that taxpayers pay their share of payroll taxes as they earn money throughout the tax year. The employer is required to withhold these payroll tax liabilities from each employee' paycheck. The withholding collected by an employer is then paid directly to the federal, state and, in some cases, local taxing authority. For federal withholding, a W-4 form is filled out by the employee. The W-4 form is used by the employer to determine the amount of withholding for each pay period. Withholding may need to be adjusted from time to time due to a change in filing status (e.g. marriage) or the addition of new dependent (e.g. new child) for example. To change withholding, the employee can, at any time, complete and give a new W-4 form to the employer. To assist taxpayers, the IRS provides an online withholding calculator which can be helpful to ensure that withholding is on par with tax liability therefore minimizing tax underpayment or tax refund.



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