Types

• The employee pays federal income tax, Medicare tax and Social Security tax. The latter two taxes are commonly called FICA (Federal Insurance Contributions Act) taxes. The employer pays federal unemployment (FUTA) tax, Social Security tax and Medicare tax.
  
  

Rates

• The employee's federal income tax withholding depends on his allowances, filing status and the IRS withholding tax tables (IRS Circular E). His Social Security and Medicare taxes are collected at 6.2 percent of gross income (up to the annual wage cap of $106,800) and 1.45 percent, respectively. The employer pays a matching portion of FICA taxes. For 2010, the FUTA tax rate was 6.2 percent of the first $7,000 paid to every worker. But if a company paid all state unemployment taxes timely, the rate is .80 percent.
  
  

Considerations

• Federal payroll taxes are used to fund national programs, such as law enforcement, defense and foreign affairs. Additionally, they provide funding for medical, retirement and unemployment benefits.