FUTA Tax Rate

FUTA tax is what funds the employment insurance for the federal government. There is also SUTA, State Unemployment Tax. Don’t get these two mistaken as these are two separate taxes.

The FUTA tax is mandatory to pay for employers who meet the conditions and Form 940 2023 – Employer’s Annual Federal Unemployment Tax Return must be filed to report FUTA taxes annually. If you meet any of the following conditions, you must pay FUTA taxes

  • You had at least one employee for any 20 or more weeks in the last two calendar years. The 20 weeks doesn’t need to be consecutive. Also, whether the employee is working part-time or full-time, it don’t matter.
  • You paid at least $1,500 or more in wages to employees in the last two calendar years. Again, the $1,500 doesn’t need to be consecutive.

That said, if you’re running a business, you are most likely to pay FUTA tax.

The Federal Unemployment Tax rate is 6 percent for the first $7,000 the employee earns. However, you are most likely to not pay the total 6 percent rate as there is a credit reduction. Since you will only pay FUTA tax for $7,000 the employee earns, it shouldn’t an amount that will give you hard times, especially if you’re eligible for the full credit.

Credit Reduction

While FUTA tax can be reduced significantly, there is one thing that you should know. If your state is one of the credit reduction states, you won’t get the full 5.4 percent credit.

A credit reduction state is a state that borrows funds from the Federal Unemployment Trust Funds but failed to repay. If that’s the case for your state, you will get a credit reduction.

For the time being, only the employers in the Virgin Islands will miss out on the full credit with a credit reduction of 3 percent, making the maximum credit 2.4 percent.

For the 2024 tax season, the credit can be up to 5.4 percent which can make you pay just 0.6 percent FUTA tax. Again, considering that the maximum wages subject to FUTA tax is $7,000, FUTA tax isn’t a tax that bothers many employers.

Paying FUTA Taxes

Although Form 940 is filed annually, you must pay FUTA taxes for every quarter. Here is an example of how much you’re likely to pay for a single employee that earns more than $7,000.

Assuming you’re eligible for the full credit which will make you pay only 0.6 percent FUTA tax, here is how your calculator is going to work.

$7,000 at .06 percent FUTA tax equals $42.

FUCA tax is paid for every quarter. If you owe $42 for a single employee, it must be paid by the end of the following month after the quarter ends.

Here is when FUTA taxes are due.

1st QuarterApril 30
2nd QuarterJuly 31
3rd QuarterOctober 31
4th QuarterJanuary 31

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