1. What is FUTA Tax?

The Federal Unemployment Tax Act (FUTA) is a payroll tax paid by employers to fund state workforce agencies. Employers pay 6% on the first $7,000 of each employee's wages (as of 2023), though most receive a credit of up to 5.4% for state unemployment taxes paid.

2. How FUTA Tax Calculation Works

The FUTA tax formula is:

Where:

• \( \text{taxable wages} \) — Wages subject to FUTA tax
• \( \text{wage base} \) — Maximum wages subject to tax ($7,000 in 2023)
• \( 6\% \) — Federal unemployment tax rate

Example: For an employee with $10,000 in taxable wages, FUTA tax would be calculated on $7,000 (the wage base): $7,000 × 6% = $420.

3. Importance of FUTA Tax

Details: FUTA tax provides funds for unemployment compensation to workers who have lost their jobs. Proper calculation ensures compliance with federal tax laws and avoids penalties.

4. Using the Calculator

Tips: Enter total taxable wages for an employee and the current wage base ($7,000 unless changed by Congress). The calculator will determine the FUTA tax amount.

5. Frequently Asked Questions (FAQ)

Q1: What is the current FUTA wage base?
A: As of 2023, it's $7,000 per employee per year. This amount can change by legislation.

Q2: Can I get a credit against FUTA tax?
A: Yes, employers who pay state unemployment taxes can claim a credit of up to 5.4%, making the effective FUTA rate 0.6%.

Q3: Who must pay FUTA tax?
A: Employers who paid wages of $1,500 or more in any calendar quarter or had one or more employees for at least some part of a day in any 20 or more different weeks.

Q4: What wages are exempt from FUTA?
A: Generally, wages over $7,000 per employee per year, certain fringe benefits, and payments to independent contractors.

Q5: When is FUTA tax due?
A: Quarterly if liability is $500 or more. Form 940 is filed annually by January 31.