The term "withholding tax" refers to the money that an employer deducts from an employee’s gross wages and pays directly to the government. The amount withheld is a credit against the income taxes the employee must pay during the year.

The vast majority of people who are employed in the United States are subject to tax withholding. Nonresident aliens are also subject to withholding taxes on earned income as well as on other income, such as interest and dividends from the securities of U.S. companies that they own.