Federal Unemployment Tax (FUTA)

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.

Example FUTA calculations.

FUTA is reported annually on Form 940. Form 940 will show all of the wages taxable and exempt from FUTA. This report will only be generated with the Q4 filings.

Form 940 can be found in Console > Document > Tax Documents.

There are several reasons additional FUTA may be collected. These range from state unemployment exemptions to a credit reduction for unpaid FUTA loans by the state. If you notice additional FUTA being deducted create a support ticket to Check and we can confirm the exact reason.