Withholding tax is a type of tax that is withheld from an individual or company's income, profits or assets before they receive it. This means that the government collects the tax due from the person or entity earning the income rather than waiting for them to file their tax returns and pay any outstanding amounts. The withholding tax is then held by the government until the individual or company files their tax return, at which point the amount is adjusted based on the final tax liability. Withholding taxes are commonly used in situations where an individual or company earns income from a source that does not withhold taxes directly, such as interest or dividend payments.