Federal Unemployment Tax

What is Federal Unemployment Tax?

The Federal Unemployment Tax Act (FUTA) is a payroll tax paid by employers on employee wages. The tax is 6.0% on the first $7,000 an employee earns; any earnings beyond $7,000 are not taxed. Since almost all small business owners will receive a credit up to 5.4% for any state unemployment taxes they pay. The federal tax credit is the same regardless what your actual state tax rate is. The actual FUTA percentage is usually 0.6%. This means the maximum FUTA liability for many businesses is $42 per employee.

When and how to pay your FUTA tax?

The due date for paying your FUTA tax is based on the amount of your quarterly tax liability. If your FUTA tax is $500 or less in a quarter, you are not required to pay the taxes until they exceed $500. You can carry the liability over to the next quarter until your FUTA tax liability exceeds $500. Once you have reached that amount, you must deposit your tax by the last day of the month after the end of the quarter.

Summary of FUTA Tax Payments Due Dates

If your undeposited FUTA tax is more than $500 Your tax payment is due
March 31 April 30
June 30 July 31
September 30 October 31
December 31 January 31

For example, the first quarter ends on March 31. Your FUTA tax liability is due on April 30 (the last day of the month following the end of the quarter).

Paying your fourth quarter tax might be different than the first three quarters. If your fourth quarter liability exceeds $500, you must deposit the entire amount through Electronic Federal Tax Payment System (EFTPS) by January 31. If your fourth quarter liability is $500 or less, you can make a deposit through EFTPS, pay the tax with a credit card, or pay the tax with your Form 940 by January 31.

How to Report FUTA tax

You must use Form 940 to report your FUTA tax liabilities. Your Form 940 is due by January 31 for the previous year. For example, your 2017 Form 940 must be filed by January 31, 2018.