Income Tax Withholding

If you are an employee, your employer will usually take income tax out of your wages and pay it to the U.S. Treasury in your name. This is called withholding. The rate of withholding depends on the amount of your income and the information you give your employer on Form W-4, Employee's Withholding Allowance Certificate. The amount withheld is credited against the tax you owe when you file your U.S. tax return.

Household employees. If you work as a household employee, your employer does not have to withhold income tax. However, you may agree to voluntary income tax withholding by filing a Form W-4 with your employer. The agreement goes into effect when your employer accepts the agreement by beginning the withholding. You or your employer may end the agreement by letting the other know in writing.

30% flat rate. If you do not work as an employee, any pay you receive for your services is subject to withholding at a 30% flat rate. Income tax must be withheld at a flat rate of 30% on the following types of income from U.S. sources unless they are connected with the conduct of a U.S. trade or business, or the rate has been lowered by tax law or income tax treaty.

• Interest (other than interest on bank deposits, savings and loan, credit union, or similar accounts, amounts held by insurance companies under agreements to pay interest, or certain portfolio debt obligations).
• Dividends.
• Rents.
• 85% of social security benefits paid to nonresident aliens.
• Annuities (payments from pensions, trusts, etc.).
• Royalties.

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