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FITW is an abbreviation for "federal income tax withholding." You may sometimes see it on payroll stubs to identify your withholding deduction. Withholding is one way of paying income taxes to the federal government before your end-of-the-year tax filing. Your FITW is one of several deductions from your take-home pay each pay period. These are different from the deductions you are allowed to take annually when you fill out your tax return, which reduce your taxable income.
Income tax in the United States is a pay-as-you-go system. That is, you pay taxes during the year, as your income is earned, rather than in a lump sum at the end of the year. Payments are generally made as federal income tax withholding deductions from a worker's paycheck. Income earners who do not receive a paycheck, such as a self-employed business owner, may be required to pay estimated taxes quarterly in lieu of income tax withholding.
Your employer probably had you fill out a Form W-4 from the U.S. Internal Revenue Service to establish the amount of FITW deduction on your paycheck. The form, along with your salary information, gives your employer the information it needs to calculate your withholding amount. You can update your W-4 information at any time if your circumstances change and you want to increase or decrease the withholding amount on your paycheck.
You're required to withhold from your pay an amount that reasonably anticipates your annual income tax obligations. The actual amount withheld depends on your income as well as the information on your financial status that you provide on your Form W-4. For example, a smaller amount is withheld if you file income tax as a married couple than as a single taxpayer. Similarly, the more exemptions you claim for dependents, the smaller your withholding. You can increase or decrease withholding depending on your financial situation. For example, if you have other sources of income apart from your employment, you can increase your withholding as a way of paying the additional tax that is due. Conversely, if you have large, deductible expenses during the year, you can lower your withholding amount in anticipation of owing less tax. You can use an IRS online withholding calculator to make the best determinations.
Your FITW is only one of several types of deductions taken from your paycheck. You also have deductions for additional federal obligations, such as Social Security and Medicare, as well as deductions for state income tax. You may also have non-government deductions, such as funds withheld for union dues, health insurance or retirement plan contributions.
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