The Federal Unemployment Tax Act imposes an employer tax on covered wages. FUTA is generally paid by the employer rather than withheld from employees. Liability depends on the federal coverage tests, and domestic-service and agricultural employment have additional rules. [1]
Rules that determine the answer
The statutory FUTA rate is six percent on the first $7,000 of annual FUTA wages per employee. A full allowable state-unemployment credit can reduce the effective rate to 0.6 percent, but late state payments and credit-reduction states can change the result. Form 940 reports annual liability; deposit rules operate separately. [1] [2]
Generally, accumulated FUTA liability over $500 triggers a deposit for the quarter under the instructions; smaller balances carry forward subject to year-end rules. Use the applicable tax year’s instructions rather than assuming last year’s credit reductions remain the same.
What to check before taking the next step
- Determine coverage, identify taxable wages and exclusions, and check the applicable year’s state credit-reduction status.
- Collect payroll registers, state unemployment payments, prior deposits, and the current Form 940 instructions.
A distinction that changes the result
The $7,000 wage base is per employee for the calendar year, not per quarter. Wages above that base do not become newly taxable solely because the next quarter begins. FUTA taxable wages and federal income-tax wages also are not necessarily identical, because the unemployment-tax rules have exclusions. Reconcile taxable payroll, the state credit, quarterly liability, and deposits before filing Form 940. A filing extension or annual return does not automatically extend a required deposit deadline or cure an incorrect state-credit assumption. [1]
Practical example
With the full credit, $7,000 of taxable wages produces $42 of FUTA. The example changes if the employer lacks the full credit or has additional adjustments.
For related situations, see on-call pay for salaried employees and special federal salary rates.
Primary sources
Sources checked: October 31, 2026.