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Withholding

Withholding: The amount of money an employer is required to deduct from an employee’s paycheck to cover income taxes, Social Security, and Medicare taxes.

Withholding refers to the amount of money that an employer is required to deduct from an employee's paycheck to cover income taxes, Social Security taxes, and Medicare taxes. The purpose of withholding is to ensure that employees pay their taxes throughout the year, rather than waiting until the end of the year to make a lump-sum payment.

Employers are required to calculate the appropriate amount of withholding based on the employee's gross income, filing status, and the number of withholding allowances claimed on their W-4 form. The W-4 form is used by employees to indicate how much federal income tax should be withheld from their paychecks.

In addition to federal income tax withholding, employers are also required to withhold Social Security and Medicare taxes from employees' paychecks. Social Security taxes are currently set at 6.2% of an employee's gross income, while Medicare taxes are currently set at 1.45% of an employee's gross income. Both the employee and employer contribute an equal amount to Social Security and Medicare taxes.

Employers must deposit the withheld taxes with the appropriate tax agencies on a regular basis, typically either weekly or monthly. Failure to comply with withholding requirements can result in legal penalties and damage to an employer's reputation.

In conclusion, withholding refers to the amount of money that an employer is required to deduct from an employee's paycheck to cover income taxes, Social Security taxes, and Medicare taxes. Employers must accurately calculate and deposit withheld taxes with the appropriate tax agencies on a regular basis. Compliance with withholding requirements is important for avoiding legal penalties and maintaining a positive reputation as an employer.