Forums Accounting What is the FUTA tax?

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    What is the FUTA tax?


    The Federal Unemployment Tax Act is a united states federal law that imposes a federal employer tax used to help fund state workforce agencies. The FUTA is paid by employers based on the gross pay of the employees. the FUTA tax percentage may change each year. Currently, the FUTA percentage rate is 6% on the first $7000 that each employee earns. This tax is paid quarterly and the form 940 tax return is filed annually on January 31 for FUTA taxes owed and tax payments made in previous year.

    Who has to pay FUTA tax?

    • Anyone who pays $1500 or more to employees in any calendar quarter.
    • Anyone who have one or more employees for at least some part of a day in any 20 or more different weeks.
    • Any organization that is exempt from income tax under section 501(c)(3) of the internal revenue code is also exempted from FUTA. This exemption cannot be waived. You do not have to pay FUTA tax when you hire contractors it is because independent contractors are not considered as employees.

    How to pay FUTA tax?

    Payments for FUTA tax must be submitted through the electronic federal tax payment system (EFTPS). You can visit to enroll online or complete form 9779 and mail it to the address on the form.

    FUTA allows the federal government to tax businesses with the employees for the purpose of collecting revenue that is then allocated to state unemployment agencies and paid to unemployed workers who are eligible to claim the unemployment insurance.

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