As a result, its employers were subject to a higher FUTA tax rate. By the end of 2019, only the Virgin Islands had past-due loan balances due to the Federal Unemployment Trust Fund. The Department of Labor determines the credit reduction states each year. This means the amount of the credit for state unemployment tax is reduced and the FUTA rate is effectively increased. If a state has not repaid money it borrowed from the federal government to cover its unemployment benefits liability, it may be classified as a credit reduction state. The percentage employers get back depends on which state they do business in and whether that state has any outstanding federal unemployment insurance loans. FUTA Tax CreditĮmployers who pay their state unemployment insurance on time are eligible to receive a FUTA tax credit of up to 5.4%, which can result in an effective FUTA tax rate of 0.6%. Generally, gross wages, most fringe benefits, and certain employer contributions to employee retirement plans are included in calculation and this total is subject to the 6% FUTA tax rate. Not all payments to employees are included in the annual wage used to calculate FUTA tax responsibility. For an employee who receives more than the $7,000 in annual wages, employers should perform the same calculation to get $420, which is the maximum they would pay in FUTA taxes for any single employee. Therefore, to calculate the FUTA tax for an employee who receives $6,000 in annual wages, they would multiply 6,000 by 0.06 to get $360. This $7,000 is known as the taxable wage base.Īfter the first $7,000 in annual wages, employers do not have to pay federal unemployment taxes.

It applies to the first $7,000 paid to each employee as wages during the year. 2020 FUTA Tax RateĪccording to the IRS, the FUTA tax rate is projected to be 6% for 2020. Instead, both the federal government and state governments collect unemployment taxes from employers only. While Social Security and Medicare taxes are withheld from employees’ paychecks, this is not the case with federal or state unemployment taxes.

Most businesses also have to comply with State Unemployment Tax Act (SUTA) which serves the same purpose in each state and coordinates with the federal tax. The Federal Unemployment Tax Act (FUTA) is a federal law that requires employers to pay a certain amount of money annually or quarterly to fund unemployment benefits for employees who lose their jobs. The long-term success of every business depends in large part on managing taxes and one employment tax that employers need to pay close attention to is FUTA. Paying taxes is an obligation business owners need to fulfill, often on a monthly, quarterly, and yearly basis.

Futa and suta tax table for 2016