Withholding Tax

What is withholding tax?

Withholding tax is money taken out of a payment before you receive it, then sent to tax authorities on your behalf. For employees, employers withhold income tax from paychecks. For some contractor payments, clients may withhold a percentage if you haven't provided proper tax documentation (backup withholding).

Withholding scenarios

Common situations involving withholding:

• Employee wages — Employers withhold income tax, Social Security, and Medicare
• Backup withholding — 24% withheld if you haven't provided a valid W-9
• International payments — Withholding may apply to payments to foreign contractors
• State withholding — Some states require withholding on certain payments

Avoiding unnecessary withholding

Provide a completed W-9 form to any US client who pays you $600 or more annually. This gives them your tax ID and certifies your information, eliminating the need for backup withholding. Without a W-9, they're required to withhold 24% of your payment.