What does tax withholding refer to?

Tax withholding refers to the practice of deducting a portion of an employee's wages for federal income taxes before they receive their pay. This means that instead of individuals paying their taxes in a lump sum at the end of the year, a part of their earnings is set aside and sent directly to the government by the employer throughout the year. This method helps ensure that individuals meet their tax obligations gradually, which can alleviate the burden of paying a large sum when tax returns are filed.

This system is designed to facilitate compliance with tax laws, as it ensures that taxes are collected in a timely manner, reducing the risk of tax evasion. Employers use specific tax withholding tables provided by the IRS to determine the correct amount to withhold based on factors such as the employee's income level and the number of withholding allowances claimed on their W-4 form.

The other options do not correctly represent tax withholding. Adjusting tax rates annually relates to how tax laws are updated but does not specifically address withholding from wages. Paying taxes at the end of the year refers to a different aspect of the tax process, where taxpayers assess their total tax liability and settle any balance due. Similarly, filing an extension on tax returns is a procedural matter for granting additional time for submission