FITW tax is Federal Income Tax Withholding and it is computed by means of IRS tax withholding tables and W-4 choices of the employee. As an employee receives pay, payroll software or human resources calculates the amount that has to be deducted and remitted directly to the government. It is computed based on gross earnings, taxable wages, deductions and credits before taxes. FITW is not similar to Social Security or Medicare taxes which are distinct. FITW specifically only covers federal income tax. It aids in distributing the tax load on each paycheck so that the employees do not receive huge amounts during the filing of tax returns.