Federal Unemployment Tax Act (FUTA)
The Federal Unemployment Tax Act, together with state unemployment systems, provides benefits to workers during brief periods of unemployment. No employee contributions are required. Employers pay 6.2% of the employee's first $7,000 of taxable wages. Employers are, however, entitled to a credit against their FUTA liability for contributions to state funds. Two types of credits are allowed:
(1) the normal credit is equal to the amount of any state unemployment insurance contributions, and
(2) the additional credit is the difference between the amount actually paid to the state system and what the employer would have paid if the state tax rate was 5.4%.
The total amount of the credits to which an employer is entitled may not exceed 5.4%. See Form 940 for more detailed information.
