The Federal Unemployment Tax Act (FUTA) requires employers to pay a federal tax to help fund unemployment benefits for workers who lose their jobs. Employers must pay this tax based on the wages they pay their employees, and the funds go to state and federal unemployment programs.
The FUTA tax rate is 6.0% of the first $7,000 in wages paid to each employee. Employers may qualify for a tax credit of up to 5.4% if they pay state unemployment taxes, reducing the effective FUTA tax rate to 0.6%. FUTA taxes are paid entirely by employers, and employees are not responsible for contributing.
Employers file IRS Form 940 annually to report FUTA tax, and payments must be made by January 31 of each year for the previous year’s wages. Employers who owe more than $500 in FUTA tax must make quarterly payments throughout the year.
Compliance with FUTA requirements is essential for employers, as failure to pay or report FUTA taxes can result in penalties and interest charges.