Withholding tax (PAYE in the UK, Lohnsteuer in Germany, retenção na fonte in Portugal) is income tax deducted directly from salary by the employer and remitted to the tax authority on the employee's behalf. Most salaried employees never pay tax directly — it is taken before they receive the money.

Withholding rates are set based on declared circumstances (single, married, number of dependents). At year end, a tax return may produce a refund if over-withheld, or an additional liability if under-withheld due to other income sources.