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Federal

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Author: Alice Gilman

Summary

  • An employer is liable for Federal Unemployment Insurance Taxes (FUTA) if, for a calendar quarter of the current or preceding calendar year, it paid at least $1,500 in wages or employed at least one employee during some part of a day in any 20 or more different weeks. For FUTA purposes, employers include tax exempt organizations, small businesses organized as disregarded entities for federal tax purposes and public employers. Family businesses, however, are not liable for FUTA on wages paid to family members. See Wages Exempt from FUTA Taxes; FUTA-Covered and FUTA-Exempt Employees.
  • Not every payment to employees and not every service performed by employees are covered under FUTA. See Wages Exempt from FUTA Taxes; FUTA-Covered and FUTA-Exempt Employees.
  • Employers pay FUTA tax on the first $7,000 in wages paid to employees. The tax rate is six percent. Employers are allowed a maximum credit of 5.4 percent against state unemployment insurance taxes paid, which can reduce employers' overall FUTA liability to 0.6 percent. Under certain circumstances, employers can reduce their FUTA liability further. See FUTA Tax Rate and Wage Base.
  • Employers that accumulate more than $500 in FUTA taxes must deposit taxes quarterly by the last day of the month following the end of the calendar quarter. Deposits must be made electronically. Employers report their FUTA taxes to the IRS on Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return. See Depositing and Paying FUTA Taxes.
  • State unemployment insurance laws pay benefits to employees who have lost their jobs through no fault of their own. While all state unemployment insurance laws must conform to FUTA, these laws can vary greatly among states. Five states also have disability insurance laws that piggyback their unemployment insurance laws. See State Unemployment and Disability Insurance Taxes.

State Requirements

The following states have additional requirements for this topic under applicable state law.