The Federal Unemployment Tax Act (FUTA) is a federal law that supports state unemployment systems by funding unemployment compensation for workers who lose their jobs. Under this act, employers are responsible for paying both federal and state unemployment taxes. Notably, the FUTA tax is solely the employer's obligation and is not deducted from employees' wages.
FUTA is primarily relevant in the context of employment law and tax law. It is used to determine the tax obligations of employers regarding unemployment compensation. Employers must file Form 940 annually to report their FUTA tax liability. This act is crucial for maintaining state unemployment programs, which provide financial assistance to unemployed workers.
Here are a couple of examples of abatement:
For instance, an employer with ten employees, each earning $8,000 annually, would initially calculate their FUTA tax based on the first $7,000 of each employee's wages. If the employer is in a credit reduction state, they may need to pay an additional tax when filing Form 940.
The Federal Unemployment Tax Act (FUTA) is the primary statute governing this tax. Additionally, state laws regarding unemployment compensation may also apply, but they can vary significantly from one state to another.
| State | Credit Reduction Status | Additional Tax Rate |
|---|---|---|
| California | Credit reduction state | 0.3 percent |
| New York | Non-credit reduction state | N/A |
| Ohio | Credit reduction state | 0.6 percent |
This is not a complete list. State laws vary, and users should consult local rules for specific guidance.
If you are an employer, ensure you understand your obligations under FUTA. You should calculate your tax liability accurately and file Form 940 on time. If you have questions or if your business is in a credit reduction state, consider consulting a tax professional. You can also explore US Legal Forms for ready-to-use templates that can assist you in managing your tax filings.
Browse our library of 85,000+ state-specific legal templates.
Only employers are responsible for paying FUTA tax; it is not deducted from employee wages.