FUTA
Federal Unemployment Tax Act - employer tax for unemployment.
FUTA is a federal employer-only tax that funds the unemployment insurance system. The tax rate is 6.0% on the first $7,000 of each employee's annual wages. However, employers receive a credit of up to 5.4% for state unemployment taxes paid, reducing the effective FUTA rate to 0.6% ($42 per employee per year). FUTA is reported on Form 940 annually.
Example
A business with 10 employees pays FUTA of $420 per year (10 × $7,000 × 0.6%) after the state unemployment tax credit, depositing quarterly if the liability exceeds $500.
Why It Matters for Your Business
FUTA is a relatively small but mandatory employer tax, and staying current on deposits prevents penalties and maintains your state credit.
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