Define: Federal Unemployment Tax Act

The Federal Unemployment Tax Act (FUTA) is a federal law that requires employers to pay a tax on wages paid to employees. The tax funds the federal unemployment program, which provides benefits to workers who have lost their jobs.

Employers are required to pay FUTA taxes if they have paid at least $1,500 in wages to employees in any calendar quarter during the current or previous year, or if they have employed at least one person for some part of a day in each of 20 different weeks in the current or previous year.

The FUTA tax rate is 6% on the first $7,000 of each employee’s wages. However, most employers can receive a credit of up to 5.4% if they pay state unemployment taxes on time.

FUTA taxes are due annually on January 31st for the previous calendar year. However, if the employer has deposited all FUTA taxes when due, they have until February 10th to file Form 940.

If an employer fails to pay FUTA taxes, they may be subject to penalties and interest on the unpaid amount. The IRS may also take legal action to collect the unpaid taxes.

Certain types of employers, such as government entities, nonprofit organisations, and religious institutions, may be exempt from paying FUTA taxes.

Yes, FUTA taxes can be deducted as a business expense on the employer’s federal income tax return.

Yes, most employers can claim a credit of up to 5.4% for state unemployment taxes paid, which effectively reduces the FUTA tax rate to 0.6%.

Employers must report FUTA taxes by filing Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, with the IRS.

More information about FUTA taxes can be found on the IRS website or by consulting with a tax professional.