What is FUTA Tax?

The 2020 FUTA Tax return (Form 940) is due on January 31, 2021.  The Futa Tax form is filed annually.  The Futa Tax rate is 6% of the initial first $7,000 in wages.  But Employers generally receive a FUTA credit reduction of 5.4% for state unemployment insurance (UI) taxes they pay, reducing the FUTA Tax Rate to 0.6% of wages paid up to a limit of $7,000 per employee. Effectively, the maximum FUTA tax is $42 per employee per year.

Federal Tax Rate

The federal unemployment tax is part of the federal and state program under the Federal Unemployment Tax Act (FUTA) that pays unemployment compensation to workers who lose their jobs. The FUTA tax is separate from the Social Security Tax, Medicare Tax, and Withholding Income Tax.  Employees do not pay FUTA tax or have it withheld from their paycheck. Employers (Owners) pay for the FUTA Tax.

  • Report FUTA taxes on Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return.

The FUTA tax rate is 6.0% of taxable wages. The taxable wage base is the first $7,000 paid in wages to each employee during a calendar year. Employers who pay the state unemployment tax, on a timely basis, will receive a FUTA reduction credit of up to 5.4% regardless of the rate of tax they pay the state. Therefore, the net FUTA tax rate is generally 0.6% (6.0% – 5.4%), for a maximum FUTA tax of $42.00 per employee, per year (.006 X $7,000. = $42.00). State law determines individual state unemployment insurance tax rates.

FUTA tax is filed annually using Form 940.  The total amount due can’t exceed over $500 or else IRS will assess a penalty and interest charges.  If the amount due is more than $500, the business is required to submit deposit payments in advance.  Most accountants will help you process this form as it is part of the payroll taxes.

California SUTA Unemployment Tax Pennsylvania SUTA Unemployment Tax
Texas SUTA Unemployment Tax Ohio WIC SUTA Unemployment Tax
New York SUTA Unemployment Tax Michigan SUTA Unemployment Tax
Florida SUTA Unemployment Tax Georgia SUTA Unemployment Tax
Illinois SUTA Unemployment Tax North Carolina SUTA Unemployment Tax

SUTA Unemployment Tax in the Other States