1. What is FUTA?
The Federal Unemployment Tax Act (FUTA) imposes a payroll tax on employers that funds the federal share of the nation’s Unemployment Insurance system. The U.S. Treasury uses FUTA revenue to:
administer each state’s unemployment insurance program,
cover extended‑benefit periods during recessions, and
lend money to states whose unemployment insurance trust funds run short.
Employees never pay FUTA.
2. FUTA vs. SUTA at a glance
| FUTA (Federal) | SUTA (State) |
Who collects | Internal Revenue Service | Individual states |
Who pays | Employers only | Employers (and, in AK, NJ, PA, employees) |
Tax base | Fixed at $7,000 per employee | Varies by state |
Base rate | 6.0 % | Set by each state |
Credit | Up to 5.4 % for timely SUTA payments | N/A |
When a state’s unemployment insurance fund is insolvent and it still owes federal loans, your FUTA credit can be reduced—raising the effective FUTA rate for employers in that state until the debt is repaid.
3. Who must pay FUTA?
If you employ any W‑2 staff (full‑time or part‑time) and meet the IRS filing thresholds—generally paying $1,500 or more in wages in any calendar quarter or having at least one employee working any part of 20 or more weeks in a year—you must:
File Form 940 annually.
Deposit FUTA tax at least quarterly if your accumulated liability exceeds $500.
1099 contractors are excluded. Payments to independent contractors do not count toward FUTA.
4. Wage base and effective rate
Federal wage base: $7,000 per employee, per year.
Statutory rate: 6.0 %.
Standard credit: 5.4 % for employers that pay SUTA on time.
Usual effective rate: 0.6 % (6.0 % minus the 5.4 % credit).
Example
Figure | Amount |
Wage base | $7,000 |
Statutory FUTA | $7,000 × 6.0 % = $420 |
Less SUTA credit | $7,000 × 5.4 % = $378 |
Net FUTA due | $42 (effective 0.6 %) |
5. How Projection Genie applies FUTA in your forecasts
Feature | How it works in RunSmart |
Automatic calculation | We apply the $7,000 base and the standard 0.6 % effective rate to every active employee. |
Future‑year projections | Because the wage base has been unchanged since 1983 and the credit rules are stable, we extend the current year’s rate into all forecast years. |