Federal Unemployment tax (FUTA)
The Federal Unemployment Tax Act (FUTA), with state unemployment systems, provides for payments of unemployment compensation to workers who have lost their jobs. Only the employer pays FUTA tax; it is not deducted from the employee's wages.
- Reported on the Annual 940 Form due end of January.
- Tax Deposits due Quarterly or Annually if under $500 in liability
- In short, employers pay $42 per employee per year.
- FUTA Real Tax Rate is 6% -- however, Effective tax rate is .6%.
- Calculates on first $7,000 earned for each employee annually
- Aka. Federal Unemployment Insurance (FUI)
Example: You pay an employee $2,333.33 per month gross. Your FUTA tax liability in the first month would be $14.00 ($2,333.33 x .006). Your FUTA tax liability in the 2nd and 3rd months would also by $14.00. However, in the 4th month you would have no additional FUTA liability for this employee and going forward until the calendar year resets the taxable wages.
• 501c3, Educational & Religious, or certain other tax-exempt organizations are exempt.
• J1 Visa Holders
IRS Circular E: http://www.irs.gov/publications/p15/ar02.html#en_US_2014_publink1000202541
IRS FUTA: http://www.irs.gov/Individuals/International-Taxpayers/Federal-Unemployment-Tax
IRS Aliens Employed in the U.S.: http://www.irs.gov/Individuals/International-Taxpayers/Aliens-Employed-in-the-U.S.---FUTA
IRS U.S. Citizens And Resident Aliens Employed Abroad: http://www.irs.gov/Individuals/International-Taxpayers