FIT stands for Federal Income Tax, which is a tax levied by the federal government on the annual earnings of individuals, businesses, trusts, and other legal entities. FIT is withheld from an employees earnings, such as regular pay, bonuses, and commissions, in addition to other types of earnings. The amount of FIT tax withheld from each paycheck is calculated based on an employees Form W-4, which provides information such as filing status, number of allowances, and additional withholding amounts. Employers withhold FIT using either a percentage method, bracket method, or alternative method. FIT tax pays for federal expenses like defense, education, transportation, energy and the environment, and interest on the federal debt. FIT taxable wages include bonuses, salaries, tips, prizes and awards given to employees, and other taxable compensation and benefits. FIT withholding is one of the deductions taken out of a paycheck for federal, state, and/or local taxes and employee benefits.