Overview:The Federal Unemployment Tax Act (FUTA), along with state unemployment insurance systems, pays unemployment insurance benefits to employees who lose their jobs through no fault of their own. While FUTA taxes are not withheld from employees' pay, most employers must pay FUTA taxes on a quarterly basis up to an annual wage base.
The base FUTA tax rate is 6% and the taxable wage base is $7,000. Most employers also must pay state unemployment insurance taxes, although at different annual wage bases and tax rates than under FUTA. A few states also require employees to contribute into the system. Employers can take steps to reduce their federal unemployment insurance tax rates.
Author: Rena Pirsos, JD, Legal Editor
Updated to reflect forthcoming amendments regarding quarterly reports and payments.
Updated to include an employer notification requirement.
The IRS and DOL announced that small and midsize employers will be able to begin claiming two new refundable payroll tax credits designed to immediately and fully reimburse the cost of providing COVID-19-related leave to their employees.
As recommended by the California Employment Development Department, employers can refer to guidance in various topic areas, including withholding taxes and unemployment insurance, in the California Employer's Guide, DE 44.
Updated to include expanded unemployment penalty provisions, effective January 20, 2020.
Updated to reflect developments regarding the ABC test for independent contractor status, effective January 16, 2020.
Updated to reflect increased state paid family leave contribution rates, effective January 1, 2020.
Compliance with federal (FUTA) and state unemployment insurance taxes and employer options for reducing their tax rates.