FUTA Definition

FUTA, or Federal Unemployment Tax Act, tax is tax that employers pay on employee wages for federal unemployment insurance. Employers report the tax on Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return.

FUTA Extended Definition
FUTA tax is the federal part of the unemployment insurance program created by the Federal Unemployment Tax Act.

Employers pay FUTA tax to fund the federal government’s part in overseeing each state’s unemployment (SUTA) program.

FUTA tax is 6% of each employee’s wages up to the first $7,000 per year. But, most employers receive a FUTA tax credit of up to 5.4%, lowering the FUTA tax rate to 0.6%.

Related Article
What Is FUTA Tax? A Brief Guide for Employers
How to Fill Out Form 940 the Right Way

Last Updated By

Rachel Blakely-Gray | Apr 27, 2023