Calculating Payroll Withholding is the process of deducting taxes and other payments from an employee’s paycheck. It involves figuring out how much an employee should have taken out for income tax, Social Security, Medicare, and any other required deductions. A business must accurately compute payroll withholding to ensure it meets all applicable governmental standards and regulations. In addition, calculating payroll withholding can help businesses assess their financial performance, better budget for upcoming expenses, and make sure all of their employees are properly taken care of.