Federal Unemployment Tax
The Federal Unemployment Tax (FUTA), paid to the Internal Revenue Service (Form IRS 940), covers the costs of administering the Unemployment Insurance and Job Service programs in all States. In addition, FUTA pays one-half of the cost of extended benefits (during periods of high unemployment) and provides for a fund from which States may borrow, if necessary, to pay benefits.

Tax Rate
The FUTA tax rate is 6.2% of taxable wages. The taxable wage base is the first $7,000 paid in wages to each employee during a calendar year. Employers who pay the State unemployment tax, on a timely basis, will receive an offset credit of 5.4% regardless of the rate of tax they pay the State. Therefore, the net Federal tax rate is .8% (6.2% - 5.4%). This would equate to a maximum of $56.00 per employee, per year (.008 X $7,000. = $56.00) in Federal tax. State tax rates are based on requirements of State law. A table of current tax rates and taxable wage base information for individual States is available from the Unemployment Insurance information technology system.

Source of information
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