1. What is FUTA Tax?

The Federal Unemployment Tax Act (FUTA) tax is a payroll tax paid by employers to fund unemployment benefits. It's calculated as 6% of the first $7,000 paid to each employee annually (though some states may have different wage bases).

2. How FUTA Tax Calculation Works

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 per employee per year ($7,000 for federal FUTA in 2023)
• 6% — The federal FUTA tax rate

Explanation: The tax is only applied to the first $7,000 (or the wage base you specify) of each employee's wages for the year.

3. Importance of FUTA Tax

Details: FUTA tax provides funds for state workforce agencies to pay unemployment compensation to workers who have lost their jobs. Employers must file Form 940 annually to report their FUTA tax.

4. Using the Calculator

Tips: Enter the total taxable wages paid to employees and the applicable wage base ($7,000 for federal FUTA). The calculator will determine how much of those wages are subject to FUTA tax and calculate the tax at 6%.

5. Frequently Asked Questions (FAQ)

Q1: What's the current FUTA tax rate?
A: The federal FUTA tax rate is 6% as of 2023, but employers may qualify for a credit of up to 5.4% if they pay state unemployment taxes on time.

Q2: What's the wage base for FUTA tax?
A: The federal wage base is $7,000 per employee per year, meaning you only pay FUTA tax on the first $7,000 paid to each employee.

Q3: Who pays FUTA tax?
A: Employers pay FUTA tax - it's not deducted from employee wages. Certain employers may be exempt if they meet specific criteria.

Q4: When is FUTA tax due?
A: FUTA tax is typically due quarterly if the liability is $500 or more. Otherwise, it's due with the annual Form 940 filing.

Q5: Are there state unemployment taxes too?
A: Yes, most states have their own unemployment tax (SUTA) with different rates and wage bases. These often qualify for the FUTA tax credit.