Withholding of Tax at Source

Withholding of Tax at Source

The withholding of tax by a payer prior to payment of various types of income as required by the tax Code. The recipient of the income claims the amount withheld as a tax payment on his or her tax return.
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This is not an additional tax, but a withholding of tax at source. Just as employers are required by law to keep back a certain percentage of tax on amounts paid out as salary or bonus (essentially a down payment on your taxes), they are also required to withhold tax on severance amounts that are not directly transferred to a registered plan.