What is federal withholding tax?

Federal withholding tax is the money that an employer deducts or withholds from an employee's pay check to send to the federal government to satisfy its tax requirement on the employee's pay. Other forms of income, such as winnings, bonuses, pensions and commissions, also have tax withheld.

If too much tax is withheld over the tax year, the person receives a refund from the Internal Revenue Service when he files his tax return. If not enough was taken out, the tax payer has to pay more money to the IRS when he files. Self-employed individuals do not have tax withheld, but they generally are required to pay an estimated tax on their earnings every quarter.