Withholding Tax
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Tax deducted at source by an employer or payer from wages, dividends, or other income before the recipient receives the payment.
## Withholding Tax
Withholding tax is a pay-as-you-earn mechanism where tax is deducted before income reaches the recipient. It ensures steady government revenue and reduces taxpayer compliance burden.
### Types
| Context | Source | System |
|---------|--------|--------|
| Employment income | Employer | PAYE (UK), Lohnsteuer (DE), W-4 (US) |
| Dividends | Paying company | WHT rate per treaty |
| Interest | Bank | WHT or information reporting |
| Royalties | Licensee | WHT per treaty |
| Contractor payments | Payer | Backup withholding (US) |
### Tax Treaties
Double tax treaties reduce withholding rates on cross-border payments. For example, the US-UK treaty reduces dividend withholding from 30% to 15% (or 0% for qualifying pension funds).
### Year-End Reconciliation
Withholding is an estimate. The actual tax liability is determined when the annual return is filed. Over-withholding results in a refund; under-withholding means a balance due.