FUTA tax is among several employment-related taxes that businesses with payroll must pay to the government. FUTA (the Federal Unemployment Tax Act) initiated a program that works along with state unemployment programs to pay benefits to workers who have lost their jobs through no fault of their own.
Employers pay the 6% FUTA tax and no portion of the tax is deducted or withheld from employees’ wages or salaries. The first $7,000 paid to each employee during the year (after deducting any FUTA-exempt payments) is subject to FUTA tax.
Employers report their tax liability annually on IRS Form 940, but quarterly tax deposits may be required. The maximum FUTA tax an employer must pay per employee per year is $420 ($7,000 x .06). Generally, employers who pay state unemployment tax on employees’ wages can receive up to a 5.4% credit on their FUTA tax obligations.