How Patriot Calculates and Monitors FUTA Tax

Background

The Federal Unemployment Tax Act (FUTA) is an imposed federal payroll tax that employers pay to fund unemployment programs. While the FUTA tax rate is technically 6% (up to the first $7,000 of wages per employee per year), most employers qualify for a credit of up to 5.4%, which reduces their FUTA tax rate to as low as 0.6%.

To learn more check out our blog article, “What is FUTA Tax?,” for an extensive overview of FUTA tax, FUTA tax credits, FUTA tax credit reductions, and more.

FUTA Tax Rates Based on SUTA Exemptions

Patriot uses the following FUTA rates per payroll, depending on your business’s situation:

• For employees covered by SUTA, FUTA is calculated using the reduced 0.6% rate each payroll.
• For SUTA-exempt employees, FUTA is calculated using the full 6% FUTA rate each payroll.

Why? Our goal is to help you avoid large, unexpected FUTA tax collections at year-end and ensure FUTA liabilities are deposited on time according to IRS rules (if Full Service Payroll). We do this through the proactive 6% Full FUTA rate for SUTA exempt employees and monitors FUTA tax for all payroll companies. Read on to learn more.

How Patriot Monitors FUTA Tax Throughout the Year

Patriot End-of-Quarter Checks on FUTA

In addition assigning the full FUTA tax of 6% to SUTA-exempt employees to ensure accurate, real-time FUTA tax collection, each quarter, we:

1. Review total FUTA taxable wages and SUTA taxes paid for all payroll companies.
2. Run calculations based on IRS credit reduction formulas to estimate FUTA tax liability for all payroll companies.
   • Read, “Does your company qualify for the full FUTA tax credit?” on our blog article.
3. Collect any additional FUTA tax needed to keep payments current for Full Service payroll. 
4. Automatically deposits FUTA tax if total liability reaches $500 or more in the quarter, regardless of your selected deposit frequency for Full Service Payroll. 

This helps spread FUTA tax payments evenly throughout the year and ensures compliance with IRS deposit requirements.

Automatic FUTA Deposits for Full Service Payroll

If your FUTA liability reaches $500 or more during the quarter, and you are Full Service Payroll, we will automatically make the deposit, keeping your business compliant and avoiding late deposit penalties. 

Patriot Monitors FUTA Credit Reduction States

Some states borrow money from the federal government when their unemployment insurance trust funds run out. If the state doesn’t repay those loans within a certain time frame (usually by November 10 of the second consecutive year after borrowing), the federal government reduces the FUTA credit for employers in that state. Each year the state doesn’t repay the loan, the credit reduction increases by 0.3%, leading to a higher FUTA tax rate for employers.

The additional FUTA tax owed because of a credit reduction state is calculated on Schedule A of IRS Form 940. Patriot monitors credit reduction states and applies additional FUTA tax owed before year-end tax filings are due. If your company is in a credit reduction state, please be aware that Schedule A of IRS Form 940 is calculated typically during the first week of January. Full Service customers will be billed for additional FUTA tax, if needed.

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