by Angela Russell

Created on: October 22, 2007   Last Updated: January 20, 2008

Any entity that engages in the payment of wages for work received is subject to employment taxes. Employers must deduct the proper taxes from an employee's gross pay each pay period. Employers then must add the business portion of the taxes and make a payment to the United States Treasury. There are three basic types of employment tax. Below you will find a brief overview of each.

FICA- FICA stands for Federal Insurance Contributions Act. FICA consists of both Social Security and Medicare withholding. The current withholding rate for Social Security withholding is 6.20% of the employee's gross earnings. The employer must then match that 6.20%. The current rate for Medicare withholding is 1.45% of an employee's gross earnings and must be matched by the employer.

Federal Withholdingor income tax withholding is deducted from an employee's pay check based on the information the employee has entered in a form W-4. Employers are not required to pay any portion of this tax. This tax is the sole responsibility of the employee. The employer must forward the deducted amount to the United States Treasury along with other payment deductions.

FUTAFederal Unemployment Tax payment is required by each employer. This amount is not deducted from an employee's paycheck. The current FUTA tax rate is 6.2%, though employers may take a deduction of up to 5.4% for SUTA (State Unemployment Taxes). An employer must check with both state and federal regulations to determine the correct amount for payment.. The total of both taxes combined is 6.2%.

The above information is a brief synopsis of employment taxes, a qualified CPA (certified public accountant) can give you specific information regarding the taxes your business must pay. This information is in no way designed to take the place of receiving advice from qualified professionals. Specific forms and rates can be found via the IRS website at www.irs.gov.

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