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Federal Unemployment Tax (FUTA)

The Federal Unemployment Tax Act (FUTA), provides for payments of unemployment compensation to workers who have lost their jobs. 

Only the employer pays FUTA tax, it is not deducted from the employee's wages

The federal unemployment tax rate is 6 percent and the tax wage base is $7,000. This means that only the first $7,000 of an employee’s wages are subject to the tax. 

Federal unemployment tax (FUTA tax) goes into a fund that covers any potential gap of state unemployment insurance programs. For example, a state might not have enough money to pay unemployment benefits during a time of high unemployment. The state can then borrow money from the federal government’s unemployment fund.

Who pays FUTA tax?

Employers must pay FUTA tax if:

  • They paid $1,500 or more in wages during any calendar quarter in either of the prior 2 years, or

  • They had at least one employee who worked for at least one day per week for 20 consecutive weeks in either of the 2 previous years.

Some employers are exempt from FUTA tax, even if they meet one of the previously listed requirements. Organizations with 501(c)3 status are exempt from FUTA tax. If your hire your parent, spouse, or child who is less than 21 years old, their wages are exempt from FUTA tax.

FUTA-exempt wages

Certain wages are exempt from the FUTA tax, including insurance premiums and other fringe benefits.

Learn about the Americans with Disabilities Act and RFP.