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Tax & Compliance
Withholding Tax
Definition
Tax withheld from payments and remitted directly to the government.
Overview
Withholding tax is deducted at the source—from employee wages, contractor payments (in some countries), or investment income. The payer remits it to tax authorities.
Example
An employer withholds 22% federal tax from an employee's $5,000 paycheck, remitting $1,100 to the IRS.
Best Practices
Understand withholding requirements for your situation. Keep accurate records and remit on time.
Common Mistakes to Avoid
Incorrect withholding rates
Late remittance
Not providing statements to recipients
Frequently Asked Questions
Do I need to withhold from contractor payments?
Generally not in the US for independent contractors, but backup withholding may apply without a valid W-9.