Withholding is the secret to making today s income tax system work. The vast majority of us pay our taxes through employer withholding. Our employer deducts taxes directly from our pay and sends them directly to the IRS, cutting out the middleman.
Withholding is actually an efficient way to collect taxes.
It cuts down on time and paperwork, it ensures that tax deposits are filed regularly and timely, and it saves us the time and effort of filing our payments. It also gives rise to the annual refund for those of us who pay too much throughout the year. Filing Form W-4 with your employer tells them how much you intend to report in taxable income. Start with your salary. Then add or subtract whatever number of exemption equivalents it takes to reach your taxable income.