Federal Unemployment Tax Act (FUTA)

Definition

The Federal Unemployment Tax Act (FUTA) is a U.S. law that imposes a payroll tax on employers to fund state workforce agencies. The funds collected are used for paying unemployment compensation to workers who have lost their jobs.

5 Must Know Facts For Your Next Test

1. Employers are responsible for paying FUTA taxes; employees do not contribute.
2. The current FUTA tax rate is 6% on the first $7,000 of each employee's wages.
3. Employers can receive a credit of up to 5.4% if they pay state unemployment taxes on time.
4. FUTA taxes must be reported annually using IRS Form 940.
5. Certain types of employment are exempt from FUTA, including agricultural labor and household work in private homes under specific conditions.

Review Questions

Related terms

State Unemployment Tax (SUTA): State-level payroll tax levied on employers to fund unemployment benefits within the state.

IRS Form 940: The form used by employers to report annual Federal Unemployment Tax Act (FUTA) contributions.

Payroll Taxes: Taxes imposed on employers or employees, typically calculated as a percentage of wages paid by the employer.