Definition:

FUTA (Federal Unemployment Tax Act) Tax is paid by employers to fund the unemployment account of the federal government, which pays employees who leave a company involuntarily.

Employers pay FUTA tax based on employee wages or salaries. The FUTA tax percentage is 0.8 percent of the first $7,000 of wages per year. Thus, the maximum annual amount of FUTA tax for any one employee is $56.

FUTA tax payments may be offset by any state unemployment fund to which the employer is required to contribute.

FUTA taxes are reported annually on Form 940 (Employer's Annual Federal Unemployment (FUTA) Tax Return and the taxes are paid annually or quarterly, depending on the amount of the taxes.

For more information read How to Complete Form 940.

Back to Unemployment Tax Q&A