Employers pay Federal Unemployment Taxes (FUTA) on the first $7,000 of an employee’s wages. The taxes support a federal unemployment fund, which compensates workers who have lost their jobs and need to claim unemployment benefits. The government generally reports unemployment benefits paid on Form 1099-G.
A company reports the wages and taxes on Form 940 (Employer Annual FUTA Return). The due date for filing Form 940 is generally January 31 of each tax year; however, additional time is available if the company paid its FUTA tax liability when originally due. The IRS Form 940 Instructions provide more details on how to complete Form 940, when to deposit your FUTA taxes, and when to file the return.
The FUTA tax rate is 6.0% (as of 2023); however, most employers receive a full credit of 5.4%, making the effective FUTA tax rate 0.6%. Employers generally receive a federal credit for unemployment taxes paid to the states.
For example, an employer in Florida with Florida employees must pay state unemployment taxes (SUTA) to the Florida Department of Revenue. Florida charges SUTA on the first $7,000 of wages paid to an employee. If the employer pays its SUTA tax, it qualifies for a credit against its FUTA tax liability.
Visit our YouTube channel for a tutorial on completing a sample Form 940 and a sample Florida RT-6 (Reemployment Tax Return).