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Definition

Income taxes

Under the U.S. pay-as-you-go system of federal income taxes, employers are required to withhold income taxes from employees each pay period.

Three variables determine the amount to be withheld: (1) the employee’s gross earnings: (2) the number of allowances claimed by the employee; and (3) the length of the pay period. The number of allowances claimed typically includes the employee, his or her spouse, and other dependents.

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