State Unemployment Tax
The State Unemployment Tax Act (SUTA) — also known as “state unemployment insurance” (SUI) — is a payroll tax paid by employers. States place these taxes into their unemployment funds to pay benefits to employees who have separated from their employer. SUTA rates vary by state. The state unemployment agency determines the tax rates annually. Employers with a positive reserve ratio receive the lowest tax rates, while negative-ratio employers may encounter substantially higher rates.
What is Federal Unemployment Tax?
The Federal Unemployment Tax Act (FUTA) is a payroll tax paid by employers on employee wages. The current FUTA tax rate is 6% of the first $7,000 a business pays to an employee each year. While the $7,000 is known as the “FUTA wage base,” SUTA may modify this base. The employers that pay their federal and state unemployment taxes in full may have the opportunity to earn a tax credit worth up to 5.4% of their FUTA taxable wages. This credit may reduce a company’s FUTA tax burden to just 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.
