Federal Unemployment Tax (FUTA)
Understand FUTA tax rates, calculations, and reporting requirements for employer obligations.
Overview
The Federal Unemployment Tax Act (FUTA) tax, with state unemployment systems, funds unemployment benefits for eligible workers. Employers pay FUTA tax based on the wages paid to employees, up to a certain threshold. FUTA tax is entirely employer-paid and does not come out of employee wages.
The FUTA tax rate is 6% on the first $7,000 of wages paid to each employee in a calendar year. Most employers are eligible for a FUTA tax credit of up to 5.4% if they pay state unemployment taxes on time. This credit effectively reduces the FUTA tax rate to 0.6%. Therefore, the FUTA tax rate is typically 0.6% on the first $7,000 of each employee's wages.
Calculation
Example FUTA calculations.
|
Scenario
|
Calculation
|
Amount
|
|
Molly earns $5,000 this year. Her employer will pay the following in FUTA on her behalf.
|
$5,000 X 0.6%
|
$30.00
|
|
David earns $30,000 this year. His employer will have the following FUTA calculation.
|
$7,000 (Taxable wage base for FUTA) X 0.6%
|
$42.00
|