How do withholding taxes work?
Withholding taxes are a way of collecting taxes from individuals directly from their paycheck or other sources of income. In Washington, these taxes are known as State Withholding Taxes and are regulated by state and federal laws. When an individual receives income from wages, salary, commissions, or other sources, their employer (or payer) must withhold a portion of the income and pay that amount to the government on behalf of the taxpayer. This amount is determined by the taxpayer’s filing status, withholding allowances, and income level. Employers must then report the amount of taxes withheld to the Internal Revenue Service (IRS) and any applicable state agencies. When it comes to international tax law, there are also withholding taxes that non-resident aliens must pay when they receive income from US sources. In this case, the amount of taxes withheld are based on the type of income earned and the applicable tax treaty between the US and the non-resident alien’s country of origin. Non-resident aliens must also file the correct forms with the IRS to claim any refundable taxes. Withholding taxes are different from income taxes, as income taxes are typically paid in a lump sum at the end of the year. Withholding taxes, however, are paid in real-time as you receive your income, making it easier to keep up with your tax payments throughout the year.
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