True or False: Both employers and employees pay federal unemployment taxes.

The statement that both employers and employees pay federal unemployment taxes is not accurate. Under the Federal Unemployment Tax Act (FUTA), only employers are responsible for paying federal unemployment taxes. This tax is meant to fund the unemployment insurance system, which provides benefits to eligible unemployed workers. Employees do not contribute to FUTA; however, some states may have their own unemployment tax programs that require contributions from employees, but that is separate from federal requirements.

Understanding the structure of unemployment taxes is crucial for contractors and businesses, as it affects their payroll obligations. Employers must also be aware of the requirements imposed by both federal and potential state regulations regarding unemployment taxes. This ensures compliance and helps in managing the overall financial obligations associated with operating a business.