Federal Unemployment Tax Act

Most people know at least one person who has been out of work and has filed for unemployment benefits. You may have filed for unemployment and received unemployment compensation yourself. If you're out of a job, it's nice to have a little financial stability while you look for a new one. Federal unemployment funding was made possible by the Federal Unemployment Tax Act, or FUTA. If you are a private, for-profit employer, you pay this federal tax by filing an annual Form 940 with the IRS once a year. Even though you will pay this once a year, you will most likely have to make quarterly tax deposits. We'll get into more detail about tax filing in our next article. FUTA works in conjunction with your state unemployment program, or SUTA. As an employer, you're required to pay 6.2 percent of taxable wages per employee for the federal program, but you can take a credit of up to 5.4 percent for any state unemployment taxes you've paid on time. The good news is there's a limit to your FUTA contributions. You can stop paying FUTA for each employee once their wages exceed $7,000 annually.

Federal Unemployment Tax Act Videos