What is FUTA?

This blog discusses FUTA payment options, obligation computation, and reporting requirements to provide readers with a thorough grasp of this critical payroll tax. It goes into the possible tax credits associated with State Unemployment Tax Act (SUTA) payments, which businesses must pay at least $1,500 yearly.
What is FUTA
What is FUTA?
Curious about FUTA? If you pay your State Unemployment Tax Act (SUTA) on time, you may be eligible for a 5.4% FUTA tax credit, reducing your burden to 0.6%. Read more on FUTA, including who pays it, how it is paid, and how it impacts unemployment benefits.
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Who does not like tax credits? If you pay SUTA (State Unemployment Tax Act) on time, you are eligible for a FUTA tax credit. This credit can be up to 5.4%, meaning your FUTA liability is 0.6%. FUTA raises revenue for unemployment insurance and job services in every state. 

So, what is FUTA? Further, we will explore it more. Employees of firms with employees who earn more than $1,500 in any calendar quarter are generally liable to FUTA.

How is FUTA Paid?

The Federal Unemployment Tax Act, or FUTA, established a program to assist states in paying for unemployment payments for terminated workers. Employers who incur at least $1,500 per year to their employees must pay the tax. In addition to this tax, you may be required to pay unemployment insurance. A corporation that owes $500 or more in FUTA taxes in a calendar year must make at least one quarterly payment. 

FUTA consists of two components: submitting FUTA taxes and filing the appropriate tax forms. The IRS allows any quarterly tax liability of less than $500 to be carried over to the following quarter.

How Does FUTA Work?

FUTA, or the Federal Unemployment Tax Act, places a payroll tax on employers to fund federal unemployment programs. 

Payroll taxes on employers fund unemployment programs. Employees with wages up to $7,000 are usually subject to 6% wage taxes. Companies are often eligible for a 5.4% credit.

How to Calculate FUTA Liability?

Employers often receive up to 5.4% credit against the FUTA tax if they pay their employees. The FUTA tax rate is 6%, and employers often receive a credit of up to 6.5%.

FUTA Liability = ( Employee A’s Eligible Wages+ Employee B’s Eligible Wages ) x6%

Who Pays the FUTA Tax?

Under FUTA, each state administers unemployment insurance and job service programs with revenue raised under the law. Employers are required to pay federal unemployment taxes annually or quarterly, which make up the payroll taxes.

The FUTA payroll tax is only charged to employers, not their employees, even though it is based on employees’ wages. It is not taken from the salaries of employees in most states and only paid employers. It is vital to note that FUTA is quite different from payroll taxes, such as Social Security, imposed on employers and employees.

Paying and Reporting FUTA

A FUTA tax reporting requirement varies depending on the entity responsible for submitting it to the IRS. In addition to paying FUTA taxes annually or quarterly, employers have different reporting requirements for various entities and employers, depending on their FUTA tax liability.

A taxpayer can report FUTA electronically on Form 940 using the IRS’ electronic filing platform. Taxpayers who prefer to mail in a paper form will have different mailing addresses depending on their state.

FUTA has two components: depositing FUTA taxes and filing the appropriate tax forms. Companies that owe $500 or more in FUTA must make at least one quarterly payment. Tax liability of less than $500 for any quarter can be carried over to the following quarter by the IRS.

What Is the FUTA Tax Rate and Limit for 2023?

The Federal Unemployment Tax Act imposes a payroll tax on all employers who have employees; the revenue raised is used to fund unemployment benefits. FUTA taxes are only assessed on employers based on employees’ wages.

There is a tax of 6% on the first $7,000 you pay each employee during the year. According to the Internal Revenue Service (IRS), the tax applies to that amount. According to your state’s rules, the state wage base may differ from the federal wage base.”


To avoid potential financial penalties and remain compliant with federal regulations, employers must pay their FUTA liability before their filing date. Understanding payroll taxes, including FUTA, is critical for employers. An organization’s reputation can be damaged if it correctly withholds or manages payroll taxes, resulting in costly legal penalties, fines, and fines. Also, check out Beem Tax Calculator to get a quick and accurate estimate of your federal and state tax refund.


How Much is FUTA?

An employee’s first $7,000 of earnings is subject to FUTA. However, earnings above $7000 are not subject to FUTA.

Who Is Exempt From FUTA?

According to section 501(c)(3) of the Internal Revenue Code, FUTA tax is a tax paid from the funds of exempt organizations.

Is FUTA the Same As Social Security?

No, FUTA is used to fund Social Security. It is used to fund unemployment benefits.

Are Household Employees Subject to FUTA?

In general, you must pay federal unemployment tax (FUTA) if you paid more than $1,000 in cash wages to household employees in any calendar quarter during the calendar year or the prior year.

What Does FUTA Stand For?

FUTA stands for Federal Unemployment Tax Act.

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This page is purely informational. Beem does not provide financial, legal or accounting advice. This article has been prepared for informational purposes only. It is not intended to provide financial, legal or accounting advice and should not be relied on for the same. Please consult your own financial, legal and accounting advisors before engaging in any transactions.

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