Tax withholding in the United States

Three key types of withholding tax are imposed at various levels in the United States:

The amount of tax withheld is based on the amount of payment subject to tax. Withholding of tax on wages includes income tax, social security and medicare, and a few taxes in some states. Certain minimum amounts of wage income are not subject to income tax withholding. Wage withholding is based on wages actually paid and employee declarations on Federal and state Forms W-4. Social Security tax withholding terminates when payments from one employer exceed the maximum wage base during the year.

Amounts withheld by payers (employers or others) must be remitted to the relevant government promptly. Amounts subject to withholding and taxes withheld are reported to payees and the government annually.

During World War II, Congress introduced payroll withholding and quarterly tax payments with the vote of the Current Tax Payment Act of 1943 :

In the History of the U.S. Tax System, the U.S. Department of Treasury describes tax withholding.

In the United States, withholding by employers of tax on wages is required by the federal, most state, and some local governments. Taxes withheld include federal income tax,Social Security and Medicare taxes,state income tax, and certain other levies by a few states.

Income tax withheld on wages is based on the amount of wages less an amount for declared withholding allowances (often called exemptions). Amounts of tax withheld are determined by the employer. Tax rates and withholding tables apply separately at the federal, most state, and some local levels. The amount to be withheld is based on both the amount wages paid on any paycheck and the period covered by the paycheck. Federal and some state withholding amounts are at graduated rates, so higher wages have higher withholding percentages. Withheld income taxes are treated by employees as a payment on account of tax due for the year, which is determined on the annual income tax return filed after the end of the year (federal Form 1040 series, and appropriate state forms). Withholdings in excess of tax so determined are refunded.

Under Internal Revenue Code section 3402(f)(2) and related U.S. Treasury regulations, an employee must provide the employer with a Federal Form W-4, “Employee's Withholding Allowance Certificate." Most states will accept the W4 form, but a few have a similar form, especially if the employee is filing different information at the state level than at the federal (an employee may be paying a different amount in withholding or claiming a different number of exemptions at the state level than the federal level). The form provides the employer with a Social Security number. Also, on the form employees declare the number of withholding allowances they believe they are entitled to. Allowances are generally based on the number of personal exemptions plus an amount for itemized deductions, losses, or credits. Employers are entitled to rely on employee declarations on Form W-4 unless they know they are wrong.

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