Contractor License Exam 2025 – 400 Free Practice Questions to Pass the Exam

Question: 1 / 400

What is the primary purpose of withholding Federal Income Tax from employee wages?

To fund retirement plans

To ensure compliance with tax laws

Withholding Federal Income Tax from employee wages primarily serves the purpose of ensuring compliance with tax laws. When employers deduct federal income tax from employees' paychecks, they help ensure that employees meet their tax obligations throughout the year rather than facing a potentially large tax bill at the end of the year. This system allows the government to collect taxes in a more manageable way, spreading the tax payments out over the course of the year as employees earn income.

The other options, while they may have their own importance in the context of employment and payroll, do not align with the primary function of tax withholding. For example, funding retirement plans is a separate process that typically involves different contributions, while providing employee benefits and covering union dues are related to benefit programs and labor agreements, not directly tied to tax compliance.

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To provide employee benefits

To cover union dues

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