What are FUTA taxes and who is responsible for paying them?
The Federal Unemployment Tax Act (FUTA), with state unemployment systems, provides for payments of unemployment compensation to workers who have lost their jobs. Most employers pay both federal and state unemployment tax. A list of state unemployment agencies is available on our website for you to review. FUTA is an employer only tax, meaning the employee is not responsible for any portion of this tax. The statutory tax rate is 6.2 percent of the employee’s wages, up to the 2007 FUTA wage base of $7,000. An employer typically only pays an effective rate of 0.8 percent because employers receive a 5.4 percent credit for the state unemployment taxes they pay or are treated as paying. Example 1: For an employee with no prior wages who earns $1,000 during the payroll period, there is no FUTA withholding since FUTA is an employer only tax. The FUTA tax equals $8.00 ($1,000 x 0.8%). Example 2: For an employee with 2007 year-to-date wages of $6,900 who earns $1,000 during the payroll period, t
