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Unemployment Insurance Tax (FUTA): Federal

Unemployment Insurance Tax (FUTA/SUTA) requirements by state

Author: Alice Gilman

Summary

  • An employer is liable for Federal Unemployment Insurance Tax Act (FUTA) taxes 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.
  • Certain employee payments and services performed are excluded from FUTA taxes. 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 6%. Employers are allowed a maximum credit of 5.4% against state unemployment insurance taxes paid, which may reduce an employer's rate to as low as 0.6%. 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.
  • An employer is also required to pay State Unemployment Tax Act (SUTA) taxes. States have enacted laws under SUTA (a.k.a. SUI laws or taxes - state unemployment insurance laws or taxes) in order to pay benefits to employees who have lost their jobs through no fault of their own. While all SUI laws must conform to FUTA, these laws can vary greatly among states. Alaska, New Jersey and Pennsylvania require employees, in addition to employers, to pay unemployment insurance taxes. Five states - California, Hawaii, New Jersey, New York and Rhode Island - also have disability insurance laws that piggyback their unemployment insurance laws. See State Unemployment and Disability Insurance Taxes.