Definition of Withholding tax:
Withholding taxes is a way for the U.S. government to tax at the source of income, rather than trying to collect income tax after wages are earned. There are two different types of withholding taxes employed by the Internal Revenue Service (IRS) to ensure that proper tax is withheld in different situations.
Employee income tax (such as PAYE) and other government imposed deductions from dividends, salaries, wages, and other incomes. Withholding taxes are levied at the point of disbursement of incomes, and are passed on to the government by the entities collecting them.
A withholding tax is an amount that an employer withholds from employees’ wages and pays directly to the government. The amount withheld is a credit against the income taxes the employee must pay during the year. It also is a tax levied on income (interest and dividends) from securities owned by a nonresident alien, as well as other income paid to nonresidents of a country. Withholding tax is levied on the vast majority of people who earn income from a trade or business in the United States.
How to use Withholding tax in a sentence?
- The money taken is a credit against the employee’s annual income tax.
- It can be a shock when you get your first paycheck and expect to make a certain amount, only to discover withholding tax es have been applied by the government which makes your take home pay smaller.
- If too much money is withheld, an employee will receive a tax refund; if not enough is withheld, an employee will have an additional tax bill.
- The withholding tax was an important factor in getting a full understand of our current and future financial health picture.
- A withholding tax takes a set amount of money out of an employee’s paycheck and pays it to the government.
- You must always be sure to take out the correct withholding tax so that everything is done above board with the legistlation.
Meaning of Withholding tax & Withholding tax Definition