FUTA Taxes: What Every Employer Needs to Know

You file payroll taxes all the time. There’s withholding, FICA, state taxes. Then there’s FUTA—the Federal Unemployment Tax Act—which is its own animal entirely. It funds unemployment benefits for people who lose their jobs, and if you employ anyone, you’re funding it.

Here’s the thing: FUTA is straightforward to understand and file, but the details matter. Miss a deposit, miscalculate your liability, or don’t understand who pays it, and you’ll end up dealing with penalties you didn’t see coming. Let’s walk through how FUTA works, what you owe, and when you owe it.

Who Pays FUTA and How Much

FUTA is an employer tax. Your employees don’t pay it. Your payroll doesn’t withhold it. You do, based on the first $7,000 of each employee’s annual wages.

The rate is 6% of that amount. So, if you have an employee earning $35,000 a year, you calculate FUTA on $7,000, not the full $35,000. That equals $420 per employee.

The good news: if you pay your state unemployment taxes in full and on time, you get a credit of up to 5.4% against your federal FUTA bill. That brings your effective rate down to 0.6%. Some states currently can’t offer that full credit because they borrowed from the federal government to cover unemployment benefits during downturns. California and the Virgin Islands have partial credit reductions in 2026, so employers there pay a slightly higher effective rate.

Do You Actually Have to Pay It

Three different rules determine whether FUTA applies to your business.

• The general test is the most common. You file FUTA if you paid any non-household employees (not farm workers) at least $1,500 in wages during any quarter of the current or previous year, or if you had one or more employees for any part of a day across 20 or more different weeks.
• Household employees like nannies, housekeepers, or gardeners have their own rule. You owe FUTA for them if they earned more than $1,000 in cash wages during any single calendar quarter.
• Agricultural employees have a higher threshold. You file FUTA if you paid a farmworker $20,000 or more in any quarter, or if you employed at least 10 workers for any part of 20 or more weeks.

A few groups are exempt. Tax-exempt nonprofits, state and local government agencies, and tribal entities don’t pay FUTA. Self-employed people don’t either.

How to Calculate Your Actual Liability

Let’s say you have two employees. One earns $30,000 a year. The other earned $4,000 before leaving. Without a tax credit, your FUTA liability would be $7,000 (the first employee’s $7,000 cap) plus $4,000 (the second employee’s entire wages) multiplied by 6%. That’s $11,000 times 0.06, or $660 total.

If you qualify for the full 5.4% credit and get to use the 0.6% rate instead, that same $11,000 in wages multiplied by 0.6% for a liability of just $66.

The calculation itself is simple. The key is tracking your wage bases correctly through the year so you’re not scrambling at filing time.

When and How You Pay

FUTA isn’t a pay-period thing. It’s quarterly or annual, depending on your liability.

If your annual FUTA liability runs $500 or more, you make quarterly deposits. If any single quarter is under $500, you carry it forward until the cumulative total hits $500, then you deposit by the next quarterly deadline.

The deposit due dates are April 30, July 31, October 31, and January 31. You must deposit through EFTPS (the Electronic Federal Tax Payment System). You can’t mail a check.

At the end of the year, you file Form 940 by January 31. If you’ve made all your quarterly deposits on time, you get an extra ten days and can file by February 10. Form 940 is a four-page form that reconciles all your quarterly deposits against your annual liability, shows your state unemployment payments, and applies any tax credits you qualify for.

The Penalties for Getting It Wrong

Miss a deposit deadline, short pay your quarterly amount, or deposit through the wrong method and you’re looking at the Failure to Deposit Penalty. It ranges from 2% to 15% of what you didn’t deposit on time, depending on how many days you were late. The longer you wait, the higher the penalty.

There’s no substitute for staying on top of this. Your payroll software should calculate FUTA liability automatically each quarter. Your accounting system should flag deposits that are coming due. If either of those systems isn’t set up, fix it now before you end up paying a penalty for something that was preventable.

The Bottom Line

FUTA is one of those taxes that feels complicated until you break it down. The rate is the same for almost everyone (0.6% to 6%, depending on credits). The wage base is $7,000. The rules for who pays are clear. The filing deadline is the same every year.

What trips people up is missing deposits, miscalculating because they didn’t track wages correctly through the year, or not realizing their state has a credit reduction. If you’re using modern payroll software that tracks FUTA automatically and alerts you to quarterly deposits, you’re covered. If you’re doing this manually or with outdated systems, now is the time to get serious about it.