withholding
Definition
Withholding is the portion of an employee's paycheck that you, as the employer, are legally required to take out and send directly to the government on their behalf. This money covers federal and state income taxes, Social Security, and Medicare before the employee ever sees their pay. The government treats you as a collection agent, making you responsible for getting that money to the right place on time.
Example
If you hire a full-time employee earning $50,000 a year, each paycheck you cut will have a chunk automatically removed for taxes, and you send that amount to the IRS on a regular schedule rather than leaving it to your employee to pay later.
Watch Out
Failing to send withheld taxes to the IRS on time is one of the most serious mistakes a small business owner can make, because the IRS can hold you personally responsible for that money even if your business closes.
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This definition is for informational purposes only and does not constitute legal advice. Please consult with a licensed attorney for legal guidance.