Federal withholding tax is a tax an employer withholds from an employee’s income, bonuses, pension, commissions and winnings. FICA, on the other hand, is the tax paid into Social Security and Medicare.Continue Reading
Under the Federal Insurance Contributions Act, or FICA, a certain percentage of income must go to Medicare and Social Security. A salaried or wage employee pays half the FICA bill, while the employer is responsible for the other half of the tax burden. People who are self-employed have to bear the burden of both the employer and employee shares of FICA. Nevertheless, they are allowed to deduct 50 percent of this tax as a business expense. Business owners who are selling property in any given tax year or anticipate having significant income from investments likely have to pay estimated taxes.
After withholding federal withholding taxes, an employer pays the money to the IRS in the employee’s name. The amount of this type of tax builds over time, and those who have paid too much qualify for a tax refund at the end of the tax year. Individuals who have not paid enough taxes might have to pay estimated taxes. Business owners usually have to pay their taxes this way. Furthermore, individuals who have other sources of income, such as interest, rent, dividends and royalties, generally have to pay estimated taxes.Learn more about Income Tax