What types of federal employment taxes exist?
There are generally three types of federal employment taxes:
- Employee Income Tax Withholding
- Federal Insurance Contributions Act (FICA)
- Federal Unemployment Tax Act (FUTA)
Employee Income Tax Withholding is the amount withheld from the employee's wage to offset their projected annual income tax due to be paid by April 15th of the following year.
The Federal Insurance Contributions Act (FICA) consists of two components commonly referred to as Social Security and Medicare. Strictly speaking, FICA provides for a federal system of old age, survivors, and disability insurance (OASDI) and hospital insurance (HI). The OASDI component is financed through the social security portion of FICA and the HI component (for persons 65 or older) is financed through the medicare portion.
The Federal Unemployment Tax Act (FUTA) was implemented to fund a federal program to provide unemployment compensation benefits to eligible employees who have lost their jobs. The FUTA system does not pay unemployment benefits directly to displaced workers, but rather coordinates the payment of these benefits with each state. Unemployment benefits are paid in compliance with each state's unemployment compensation laws.