1. What is FUTA Tax?

The Federal Unemployment Tax Act (FUTA) is a payroll tax that provides funds for state unemployment agencies. Employers pay this tax, not employees. The standard FUTA tax rate is 6% on the first $7,000 of each employee's wages (though the wage base may vary by state).

2. How FUTA Tax is Calculated

The FUTA tax formula is:

Where:

• Taxable Wages — The wages subject to FUTA tax
• Wage Base — The maximum amount of wages subject to FUTA tax (typically $7,000)
• 0.06 — The standard FUTA tax rate (6%)

Explanation: The calculation applies the 6% rate only to the portion of wages that don't exceed the wage base limit.

3. Importance of FUTA Tax Calculation

Details: Accurate FUTA tax calculation ensures compliance with federal unemployment tax requirements and helps employers budget for payroll taxes correctly.

4. Using the Calculator

Tips: Enter the total taxable wages and the applicable wage base (typically $7,000). The calculator will determine the FUTA tax payable at the 6% rate.

5. Frequently Asked Questions (FAQ)

Q1: What is the current FUTA tax rate?
A: The standard FUTA tax rate is 6%, but employers may qualify for a credit of up to 5.4% if they pay state unemployment taxes, making the effective rate 0.6%.

Q2: What is the wage base for FUTA tax?
A: The federal wage base is $7,000 per employee per year, though some states may have different wage bases.

Q3: Who pays FUTA tax?
A: Employers pay FUTA tax; it is not deducted from employee wages.

Q4: When is FUTA tax due?
A: FUTA tax is typically filed quarterly using Form 940, with specific due dates each quarter.

Q5: Are all wages subject to FUTA tax?
A: No, certain types of compensation like fringe benefits may be exempt. Only the first $7,000 of taxable wages per employee is subject to FUTA.