Tax Withholding
Definition
The amount of federal income tax your employer deducts from your paycheck and sends directly to the IRS on your behalf. Withholding is based on the information you provide on Form W-4. If too much is withheld, you get a refund; if too little, you owe taxes when you file. Self-employed individuals handle this through quarterly estimated tax payments instead.
Example
If your employer withholds $500 per paycheck for federal tax and you're paid biweekly, $13,000 is sent to the IRS annually on your behalf.