What does Withholding mean?

Withholding is the process whereby a taxpayer's employer holds back a certain portion of the taxpayer's pay and sends that money to the Internal Revenue Service, in anticipation of the amount of income tax the taxpayer will owe at the end of the tax year.

When taxpayers complete their tax return to calculate their tax liability, the amount of tax withheld is applied against the tax liability to determine if the taxpayer will receive a refund or owes additional money to satisfy a tax liability balance still owed. The amount of taxes withheld by an employer is determined by Form W-4, which the employee typically completes at the time they are hired and can be updated by the employee as needed.

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