FUTA (Federal Unemployment Tax Act): Rates and Credits
How FUTA is calculated
FUTA applies to the first $7,000 of each employee's annual wages — the FUTA wage base.
- Gross FUTA rate: 6.0%
- Credit for timely state unemployment (SUI) payments: up to 5.4%
- Effective rate for most employers: 0.6% ($42 per employee per year)
Credit reduction states
If a state borrows from the federal government to pay unemployment benefits and doesn't repay in time, employers in that state lose part of the 5.4% credit, raising their effective FUTA rate. The IRS publishes credit-reduction states each year.
FUTA vs SUTA
FUTA is the federal unemployment tax. SUTA/SUI is the state unemployment tax, with rates and wage bases that vary by state and by your experience rating. Both are employer-paid.
Filing FUTA
Employers report FUTA annually on Form 940, with deposits required quarterly once liability exceeds $500.
Related terms
FICA →FLSA →Multi-State Nexus →ACA →
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Who pays FUTA?
Only employers pay FUTA. It is never withheld from employee wages.
What is the FUTA rate in 2026?
The gross rate is 6.0% on the first $7,000 of wages, reduced to an effective 0.6% for employers who pay state unemployment taxes on time.
What is a FUTA credit reduction state?
A state that owes the federal government for unemployment loans, causing employers there to lose part of the 5.4% FUTA credit and pay a higher effective rate.
How does MyCo handle FUTA?
MyCo calculates FUTA per employee, applies the correct credit, accounts for credit-reduction states, and produces Form 940-ready data; US payroll tax filing is configured during onboarding through your payroll provider.