Tax Withholding

Tax withholding refers to the amount of an employee's pay withheld by the employer and sent directly to the government as partial payment of income tax. Freelancers, being self-employed, do not have taxes withheld and must estimate and pay these themselves.

What is tax withholding?

Tax withholding is the amount of money that an employer withholds from an employee's paycheck to pay federal, state, and local taxes.

The amount of tax withheld depends on the employee's income, filing status, and the number of allowances claimed on their W-4 form.

How does tax withholding work?

When an employee starts a new job, they fill out a W-4 form that indicates their filing status, number of allowances, and any additional withholding they want to request.

The employer then uses this information to calculate the amount of federal income tax to withhold from the employee's paycheck.

The withheld taxes are then paid to the IRS on the employee's behalf.

What happens if too much tax is withheld?

If too much tax is withheld, the employee will receive a refund when they file their tax return.

However, this means that the employee has essentially given the government an interest-free loan for the year.

What happens if too little tax is withheld?

If too little tax is withheld, the employee may owe additional taxes when they file their tax return.

In some cases, the employee may also be subject to penalties for underpayment of taxes.

What is Workmade?

WorkMade is an all-in-one banking and accounting app designed specifically for freelancers! WorkMade gives you access to: zero-fee business banking, automated bookkeeping, fast and easy invoicing, and quarterly tax estimations and payments.

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