Minds → Payroll & Employment Tax → When must an employer withhold federal income tax from wages? Answer in under 100 words. Cite only eCFR (www.ecfr.gov) sources.

US Federal

When must an employer withhold federal income tax from wages? Answer in under 100 words. Cite only eCFR (www.ecfr.gov) sources.

Under 26 CFR 31.3402(a)-1, an employer must withhold federal income tax from wages as and when paid, either actually or constructively. Wages are constructively paid when credited or set apart for the employee without substantial limitation. The employer must withhold even when wages are paid in property other than money, and must remit the tax in money.

Last verified: 2026-08-27 · Sources checked: 1/1 resolving · Next scheduled review: 2026-11-25

How withholding is triggered

Per 26 CFR 31.3402(a)-1(b), the employer collects the tax by deducting and withholding from the employee's wages as and when paid, either actually or constructively. Constructive payment occurs when wages are credited to the account of or set apart for an employee so that they may be drawn upon at any time, without substantial limitation or restriction as to time, manner, or condition.

Exceptions & edge cases

Under 26 CFR 31.3402(a)-1(c), withholding and payment in money are still required even when wages are paid in something other than money (e.g., stocks or bonds). Sections 3402(j) and (k) provide exceptions for noncash remuneration paid to retail commission salesmen and for tips. Branch managers may handle mechanical details, but the legal responsibility for withholding, paying, and returning the tax remains with the employer.

Sources

[1]U.S. Government Publishing Office / Internal Revenue Service — 26 CFR 31.3402(a)-1 — Requirement of income tax withholding from wages · as of 2026-08-27

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