FUTA, formally known as Federal Unemployment Tax Act, is a federal law mandating a payroll tax on employers to fund unemployment benefits for laid-off workers. Unlike Social Security Tax that shares the burden for payment between employers and employees, FUTA lays the whole burden on the boss with employees not contributing a dime. The IRS collects this tax, which goes into a federal trust fund from which individual states draw in order to pay eligible persons unemployment insurance (UI) benefits. As of 2025, the tax rate is 6% on the first $7,000 of wages paid to each employee, but most employers receive a tax credit that reduces it to 0.6% as long as they pay into state unemployment programs on time.<\/span>\u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n FUTA\u2019s whole deal is to create a safety net for workers who get laid off or otherwise lose their jobs through no fault of their own. The tax dollars flow into the Federal Unemployment Trust Fund, which the U.S. Department of Labor oversees. States then use this cash\u2014along with their own unemployment taxes\u2014to hand out benefits, helping people pay bills while they hunt for new work. It\u2019s a team effort: FUTA covers admin costs and loans to states when their UI funds run dry, while state programs handle the actual payouts. Think of it as a backup plan to keep the economy steady when jobs take a hit.<\/span>\u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n Calculating FUTA tax is\u00a0simple, and it mirrors the payroll tax vibe from your Social Security reference\u2014just employer-side only. Here\u2019s the breakdown: <\/span>\u00a0<\/span><\/p>\n You only pay FUTA on employees\u2014not independent contractors\u2014and only if you hit certain thresholds: paying $1,500+ in wages in any quarter or having at least one employee for 20 weeks in a year.<\/span>\u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n What is FUTA? FUTA, formally known as Federal Unemployment Tax Act, is a federal law mandating a payroll tax on employers to fund unemployment benefits for laid-off workers. Unlike Social Security Tax that shares the burden for payment between employers and employees, FUTA lays the whole burden on the boss with employees not contributing a […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[10],"tags":[],"class_list":["post-886","post","type-post","status-publish","format-standard","hentry","category-f"],"yoast_head":"\nThe Purpose of FUTA<\/h2>\n
How is FUTA Tax Calculated?<\/h2>\n
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Key Details for FUTA<\/h2>\n
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