The federal unemployment tax is small per employee but easy to get wrong: it has a low wage base, a large credit, and a credit-reduction twist for some states. Employers pay it themselves, on top of state unemployment tax.
This guide gives the rate, wage base and credit, a worked example for a small employer, credit reduction states, and the deposit and filing rules. It follows IRS Topic 759 and the Instructions for Form 940.
| Item | Rule |
|---|---|
| FUTA tax rate | 6.0% |
| Credit for state unemployment tax paid | Up to 5.4% of FUTA taxable wages, claimed on Form 940 |
| Effective rate with the maximum credit | 0.6% |
| FUTA wage base | The first $7,000 paid to each employee in the year |
The $7,000 is often called the federal or FUTA wage base. Most employers pay both a federal (FUTA) and a state unemployment tax. Count all full-time, part-time and temporary employees.
An employer has 3 employees, each paid more than $7,000 in the year. FUTA taxable wages are 3 x $7,000 = $21,000.
| Case | Calculation | FUTA tax |
|---|---|---|
| With the maximum 5.4% credit (0.6% rate) | $21,000 x 0.6% | $126.00 |
| Without the credit (6.0% rate) | $21,000 x 6.0% | $1,260.00 |
The credit is why most employers who pay their state unemployment tax pay only a small federal amount.
A state that has not repaid money it borrowed from the federal government to pay unemployment benefits is a credit reduction state. The U.S. Department of Labor determines which states they are. If an employer pays wages subject to the unemployment tax laws of a credit reduction state, the credit is reduced and the employer must pay additional federal unemployment tax when filing Form 940. Use Schedule A (Form 940) if you paid wages in more than one state or in any state subject to credit reduction. Liabilities owed for credit reduction must be included with the fourth quarter deposit.
The status is not final until November 10 of the tax year: a state is reduced only if it still owes federal advances on that date. For 2025 the Department of Labor notice (published 12 January 2026) lists California at a 1.2 percent credit reduction and the U.S. Virgin Islands at 4.5 percent. Connecticut and New York repaid before November 10, 2025 and are not reduced. For 2026 the determination comes after November 10, 2026, so check the Department of Labor notice and the Form 940 instructions for 2026.
| Situation | What to do |
|---|---|
| FUTA liability over $500 for the calendar year | Deposit at least one quarterly payment, by the last day of the month after the quarter ends |
| FUTA liability $500 or less in a quarter | Carry it forward to the next quarter |
| Fourth-quarter liability (plus undeposited amounts) $500 or less | Deposit it or pay with Form 940 by the due date |
| Filing Form 940 | Due January 31, or the next business day if that falls on a Saturday, Sunday or legal holiday |
January 31, 2027 is a Sunday, so a 2026 return filed in January 2027 would normally be due on the next business day, February 1, 2027. For comparison, the 2025 return was due February 2, 2026. If you deposited all your FUTA tax when it was due, the instructions allow you to file by February 10 instead (February 10, 2026 for the 2025 return). The credit for state unemployment tax also depends on paying the state tax by the Form 940 due date, so pay it on time.
If a business was sold or transferred during the year, each employer who meets the conditions must file Form 940.
There are three tests: a general test, a household employees test and an agricultural employees (farmworkers) test. Under the 2025 Form 940 instructions:
| Test | You must file Form 940 if |
|---|---|
| General | You paid wages of $1,500 or more in any calendar quarter of the current or prior year, or had one or more employees for some part of a day in 20 or more different weeks of the current or prior year |
| Household employer | You paid cash wages of $1,000 or more to household employees in any calendar quarter of the current or prior year |
| Agricultural | You paid cash wages of $20,000 or more to farmworkers in any calendar quarter, or employed 10 or more farmworkers in 20 or more different weeks, in the current or prior year |
Do not collect or deduct FUTA tax from employees' wages. Employer payroll taxes for Social Security and Medicare are covered in our net vs gross guide.