Definition of Federal Unemployment Tax Act

What is the Federal Unemployment Tax Act?

The Federal Unemployment Tax Act (FUTA) tax helps to pay unemployment benefits to workers who lose their jobs. FUTA taxes are paid only by employers. Employees do not have any amounts withheld for FUTA taxes.

  • The FUTA tax rate is 6%, but most employers receive a credit, up to a 5.6%.
  • The FUTA tax has a wage base of $7000. This is the maximum portion of an employee’s income that is subject to the tax.
  • FUTA tax amounts are reported separately from FICA and income taxes on Form 940.
  • FUTA taxes are deposited at the end of each quarter, each time the cumulative amount is greater than or equal to $500.