Federal Taxes

Two types of federal level taxes are normally withheld from the paycheck you earn, income taxes and payroll taxes.

The income tax on your personal income is used to support federal programs such as national defense, highways, community development, and law enforcement.

The payroll tax, commonly known as Social Security (also the FICA--Federal Insurance Contribution Act-Tax), is a tax for medical coverage for retirees after reaching age 65 and some benefits (income) for retired and disabled workers and their dependents.

When you file your income tax, essentially you are settling your tax bill with the federal government, that is, you get a refund if you have overpaid them or you send in more money if you have underpaid federal taxes based on your income. Self-employed individuals usually send in their required taxes on a quarterly basis, but will also settle their bill when filing the income tax return.