FUTA 101

The Federal Unemployment Tax Act (FUTA) is an unemployment tax companies must pay on behalf of their employees. If your business paid at least $1,500 in wages during any business quarter in the current or previous year, you must pay FUTA.

FUTA – which has a different system and rate for each state – provides compensation to workers who’ve lost their jobs. The federal rate is 6.0%, and if employers live in a state with its own unemployment tax, they can earn a 5.4% credit for taxable income. That is, if they pay their State Unemployment Tax (SUTA) on time, and regularly.

Because of the SUTA tax credit, most employees end up paying 0.6% of the first $7,000 per year of each employee’s salary. The wage base for FUTA is $7,000. Generally, that equals a maximum cost for FUTA per employee per year as $42. The more employees, the more FUTA.

To determine what you must pay in FUTA, check out Form 940 here.