What withholding actually is
When you get paid, your employer sets aside part of each paycheck for the IRS. That set-aside is called federal income tax withholding, and it appears on your paystub as "Federal Income Tax" or "Fed Withholding" or "FIT".
Withholding is a prepayment — not the final tax. Your actual annual income tax is calculated when you file your Form 1040 the following April. If withholding covered more than the actual tax, you get a refund. If less, you owe.
How the employer calculates it
Employers use IRS Publication 15-T, which contains withholding tables and formulas. The two inputs are your W-4 and your gross wages for the pay period.
The 2020+ W-4 asks for filing status (Single, Married filing jointly, Head of household), whether you have multiple jobs, dependents (converted to a dollar credit), other income, and additional deductions or additional withholding. There is no more "number of allowances" — the form was redesigned to produce more accurate withholding on the first paycheck.
The employer plugs those inputs into the payroll software, which annualizes your gross for the pay period, applies the tax brackets, subtracts the dependent credit, prorates back to the pay period, and adds any extra withholding you requested. The result is the FIT line on your stub.
Why your withholding might be wrong
A few common causes of a big refund or a big bill in April:
• Two-earner household without checking the multiple-jobs box on both W-4s — each employer under-withholds because it doesn't see the other job.
• Side income (freelance, rental, crypto) with no matching quarterly estimated tax payments.
• A large bonus taxed at a flat 22% (federal supplemental rate) when your marginal rate is higher.
• A tax-law change (bracket shifts, standard deduction) that the employer's payroll software hasn't picked up yet.
If you had a large April surprise, use the IRS Tax Withholding Estimator at irs.gov and submit an updated W-4 to your employer.