Withholding
The income tax your employer deducts from each paycheck and sends to the government on your behalf during the year.
What Withholding means
Withholding is pay-as-you-go taxation. Rather than settling a single bill each April, your employer estimates what you owe and remits a portion of every paycheck to the IRS and your state.
How much is withheld depends on the Form W-4 you filed — filing status, dependents, other income, and any additional amount you requested. Withhold too little and you owe at filing, potentially with an underpayment penalty. Withhold too much and you get a refund.
A large refund is not a win. It means you lent the government money interest-free for up to a year, which is money that could have been paying down debt or earning yield in a high-yield savings account.
The aim is to land near zero. It is worth re-checking your W-4 after a marriage, a new child, a second job, or a significant raise — the events most likely to leave withholding badly calibrated.
Self-employed people have no employer to withhold for them and make quarterly estimated payments instead.
Related terms
Tax Bracket
An income range taxed at a particular rate — only the income inside that range is taxed at it, not your whole salary.
Traditional IRA
A retirement account where contributions may be tax-deductible now and withdrawals are taxed as ordinary income later.
Capital Gains
The profit from selling an asset for more than you paid, taxed at a lower rate if you held it longer than a year.
High-Yield Savings Account
A federally insured savings account paying a much higher rate than a typical bank account, with full access to your money.
Run the numbers
Income Tax Calculator (Federal Brackets)
Estimate your U.S. federal income tax, marginal and effective rates, and take-home pay — with a bracket-by-bracket breakdown of how your income is taxed.
Free newsletter
Get smarter about money — every week
Join thousands of readers who receive our carefully curated analysis on personal finance, investing, and economic trends.
No spam. Unsubscribe anytime. We never sell your data.