Final answer:
In 2016, employers were required to pay FUTA tax on the first $7,000 of each employee's annual wages, which contributes to state unemployment funds. Unlike Social Security tax, FUTA is paid solely by the employer and not deducted from employee wages.
Step-by-step explanation:
In 2016, employers were required to pay FUTA tax (Federal Unemployment Tax Act) on the first $7,000 of each employee's annual wages. This is considered a payroll tax that, along with Social Security and Medicare taxes, is part of employers' federal tax responsibilities.
Notably, the employer pays the FUTA tax out of their own funds and it is not deducted from the employee's wages; contrast this with Social Security tax, where both the employer and employee contribute 6.2% of the employee's wages, up to a certain income limit, which was $118,500 in 2015 and later $128,700.
Like Social Security, FUTA is a type of payroll tax used to fund government programs - in this case, state unemployment funds. Economists note that for Social Security and Medicare taxes, while the official stance is that employers and employees split the cost, the effective economic burden may be primarily on employees through lower wages offered by employers to offset their share of the tax.