What is withholding in tax?

Withholding in tax refers to the process where an employer deducts a portion of an employee's earnings and remits it directly to the government as a prepayment of the employee's income tax liability. This system helps ensure that individuals pay their taxes gradually throughout the year rather than in a lump sum at tax time. Withholding also applies to other types of income, such as interest and dividends, and is designed to help taxpayers meet their tax obligations more easily. The amount withheld can vary based on factors like income level and the employee's tax filing status.