Three key types of withholding tax are imposed at various levels in the United States: Wage withholding taxes, Withholding tax on payments to foreign persons, and Backup withholding on dividends and interest. The amount of tax withheld is based on the amount of payment subject to tax. Withholding of tax on wages includes income tax, social security and medicare, and a few taxes in some states. Certain minimum amounts of wage income are not subject to income tax withholding. Wage withholding is based on wages actually paid and employee declarations on federal and state Forms W-4. Social Security tax withholding terminates when payments from one employer exceed the maximum wage base during the year. Amounts withheld by payers (employers or others) must be remitted to the relevant government promptly. Amounts subject to withholding and taxes withheld are reported to payees and the government annually. History During World War II, Congress introduced payroll withholding and quarterly tax payments with the vote of the Current Tax Payment Act of 1943 : In their History of the U.S. Tax System, the U.S. Department of Treasury describes tax withholding. This greatly eased the collection of the tax for both the taxpayer and the Bureau of Internal Revenue. However, it also greatly reduced the taxpayer's awareness of the amount of tax being collected, i.e. it reduced the transparency of the tax, which made it easier to raise taxes in the future. Withholding on wages In the US, withholding by employers of tax on wages is required by the federal, most state, and some local governments. Taxes withheld include federal income tax, Social Security and Medicare taxes, state income tax, and certain other levies by a few states. Income tax withheld on wages is based on the amount of wages less an amount for declared withholding allowances (often called exemptions). Withholding for allowances are calculated based on the assumption of a full year of wages. Amounts of tax withheld are determined by the employer. Tax rates and withholding tables apply separately at the federal, most state, and some local levels. The amount to be withheld is based on both the amount wages paid on any paycheck and the period covered by the paycheck. Federal and some state withholding amounts are at graduated rates, so higher wages have higher withholding percentages. Withheld income taxes are treated by employees as a payment on account of tax due for