Federal income tax withholding is the amount of tax that an employer is required to withhold from an employee’s paycheck. This amount is determined by the number of exemptions that an employee claims on her taxes and the amount of income that is being paid to her.
Types of Income Tax Withholding
Part of what is funded through the federal income tax withholding is the unemployment tax. A separate tax amount, known as the FICA (Federal Insurance Contributions Act) tax, is levied for Social Security and Medicare. However, the FICA amounts are not recoverable at income tax reporting time. An individual taxpayer may, depending on her status, be able to claim deductions or credits as a refund.
Purpose of Income Tax Withholding
The income tax withholding provides a steady stream of cash flow to the federal government, which taxpayers can reconcile against every year by April 15th. The money is important to finance government programs, roads, jobs and other projects funded by the government.