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Federal Unemployment (FUTA)

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What is Federal Unemployment(FUTA)?


The Federal Unemployment Tax Act, with state unemployment systems, provides for payments of unemployment compensation to workers who have lost their jobs. Most employers pay both a federal and a state unemployment tax. Only the employer pays FUTA tax; it is not withheld from the employee's wages. For more information, see the Instructions for Form 940.

What is my 2015 rate and wage base?

For 2015, The FUTA tax rate is 6.0% and the wage base is $7,000. FUTA will be calculated on the first $7,000 of taxable wages for each employee.

Generally, you can take a credit against your FUTA tax for amounts you paid into state unemployment funds. The credit may be as much as 5.4% of FUTA taxable wages. If you are entitled to the maximum 5.4% credit, the FUTA tax rate after credit is 0.6%. You are entitled to the maximum credit if you paid your state unemployment taxes in full, on time, and on all the same wages as are subject to FUTA tax, and as long as the state is not determined to be a credit reduction state.

What is FUTA Credit Reduction State?

A state is a credit reduction state if it has taken loans from the federal government to meet its state unemployment benefits liabilities and has not repaid the loans within the allowable time frame.

When do I pay and report FUTA?

FUTA liabilities are paid the last day of the first month that follows the end of the quarter when liabilities are over $500 and reported on the 940 at the end of the year.

Additional Links

Federal Unemployment (FUTA) Tax - Publication 15

FUTA Credit Reduction

Publication 15 (Circular E), Employer's Tax Guided 2015 - PDF Version

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Views: 1339 Created on: Apr 17, 2015
Date updated: Sep 25, 2015
Posted in: Resource

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