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 amendments to the determination of unemployment tax coverage, effective January 1, 2020.
Updated to reflect increased state paid family leave contribution rates, effective January 1, 2020.
Updated to reflect the repeal of the AB or AC test of employment status, effective January 1, 2020.
Updated to reflect the repeal of the ABC test of employment status, effective January 1, 2020.
Updated to reflect the 2020 state taxable wage base amounts.
Updated to reflect amendments to definition of misconduct for unemployment benefits purposes, effective September 19, 2019.
Updated to reflect a decrease in the electronic filing threshold for quarterly reports, effective August 28, 2019.
Updated to reflect an amendment to unemployment insurance eligibility, effective July 3, 2019.
Updated to include the quarterly electronic reporting requirement, effective July 1, 2019.
Compliance with federal (FUTA) and state unemployment insurance taxes and employer options for reducing their tax rates.