Definition
Tax your employer takes out of each paycheck and sends to the government on your behalf.
What it means
Withholding is how most employees pay income tax during the year. Your employer uses your Form W-4 and IRS tables to figure federal income tax to withhold from each paycheck, and also withholds Social Security and Medicare taxes and, in most states, state income tax. At the end of the year, the total appears on your Form W-2, and your tax return compares it with your actual tax. Too little withholding can mean a balance due and possibly a penalty; too much means a refund. The IRS Tax Withholding Estimator helps check whether you are on track, especially after a marriage, new child, second job or big change in income. Withholding can also apply to pensions, Social Security if requested, gambling winnings and some payments to contractors under backup withholding.
Example
If you expect to owe $7,200 in federal income tax and you are paid 24 times a year, withholding of about $300 per paycheck would cover it.
Illustrative numbers only. Your situation will differ.