An Introduction to FUTA Tax

As an employer, you are responsible for a variety of taxes. These include State Unemployment Tax Act (SUTA), Federal Unemployment Tax Act (FUTA), and Social Security and Medicare taxes (FICA). FUTA is a federal payroll tax that all employers must pay. The tax funds unemployment compensation for workers who have lost their jobs. In this blog post, we will provide an overview of the FUTA tax, including who must pay it and how much it is.

What Is FUTA Tax?

FUTA tax is a federal payroll tax that all employers must pay. The tax funds unemployment compensation for workers who lose their jobs. The vast majority of employers must pay 6% on the first $7,000 of wages paid to each employee during the year. This amounts to a maximum FUTA tax liability of $420 per employee per year. Some states also have unemployment compensation programs that are funded by state payroll taxes. These programs are known as State Unemployment Tax Acts (SUTA).

Who Must Pay FUTA Tax?

The majority of employers in the United States must pay FUTA tax. This includes businesses with one or more employees, as well as non-profit organizations and government agencies. There are a few exceptions, however. Employers who are exempt from FUTA tax include those in the agricultural industry, household employers, and nonprofit organizations that are religious or educational in nature.

Deadlines for Reporting and Paying FUTA Tax

Employers must file Form 940 - Employer's Annual Federal Unemployment (FUTA) Tax Return - by January 31st of the year following the calendar year to which the return applies. For example, if you paid wages in 2020, you would file your return by January 31st, 2021. If you owe FUTA tax, you must make payments by April 30th, July 31st, October 31st, and January 31st of the following year.

What is the FUTA Rate for Employers?

The current FUTA rate is 6% on the first $7,000 of wages paid to each employee during the year. This amounts to a maximum liability of $420 per employee per year.

Who and What is Exempt from FUTA?

As we mentioned earlier, some employers are exempt from paying FUTA tax. These include those in the agricultural industry, household employers, and nonprofit organizations that are religious or educational in nature. In addition, certain types of payments are not subject to FUMT tax, such as vacation pay, holiday pay, severance pay, tips, and commissions earned by employees working in retail or service occupations that amount to less than $20 per month on average.

FUTA vs. FICA

FICA (Federal Insurance Contributions Act) taxes fund Social Security benefits and Medicare health insurance while FUMA taxes go into a pool of money set aside to help those who have lost their jobs due to no fault of their own such as layoffs due to downsizing or plant closures.

Get Organized to Get Peace of Mind

As an employer in the United States, it is important that you understand your responsibilities when it comes to taxes. One type of tax that you may be responsible for paying is the FUTA tax. This federal payroll tax funds unemployment compensation for workers who lose their jobs through no fault of their own.

such as layoffs or plant closures Get peace of mind by being organized and knowing which deadlines apply to which taxes owed..</p>