The number of withholding allowances of an employee affects which of the following?

The number of withholding allowances an employee claims directly impacts the amount of federal income tax that is withheld from their paycheck. Withholding allowances are used on the Form W-4, which employees submit to their employer to indicate how much federal income tax should be withheld.

The more allowances an employee claims, the less federal income tax is withheld. This is because withholding allowances take into account personal circumstances such as dependents or other tax deductions for which the employee may qualify, effectively lowering the taxable income amount that is subject to withholding. Therefore, the withholding allowances play a significant role in determining the federal income tax liability over the tax year.

In contrast, the amounts withheld for Social Security and Medicare taxes are set rates that do not consider withholding allowances. Similarly, state unemployment tax is calculated based on a different set of criteria and is not affected by the number of withholding allowances claimed by an employee. Thus, the correct answer highlights the direct relationship between withholding allowances and the calculation of federal income tax withholding.