Question

Money withheld from employees' gross earnings to pay federal and state and local (if any) income taxes and certain other taxes are held in __________ accounts.

A) Savings
B) Checking
C) Escrow
D) Withholding

Answer 1

Funds that are deducted for federal, state, and local income taxes from employees' wages are typically held in escrow accounts until they are paid to tax authorities.

Step-by-step explanation:

Money withheld from employees' gross earnings to pay federal, state, and local income taxes are typically held in escrow accounts. The terms escrow generally refers to funds that are held by a third party while waiting for certain conditions to be met. When referring to payroll, escrow accounts are used to hold the withholding taxes deducted from an employee's wages until they are paid to the tax authorities. This method ensures that payroll taxes, which include federal income tax, Social Security, Medicare, and any applicable state or local taxes, are properly collected, reported, and paid in a timely manner