What is FUTA Tax?
Understanding Federal Unemployment Tax Act
Written by Stephanie Glanville
Stephanie Glanville is the Marketing Manager of TaxBandits. She has several years of experience with IRS tax forms and the funtionality of TaxBandits. With a passion to help business owners better understand their IRS tax forms and filing, she aims to create content that is valuable and informative.
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In the U.S., layoffs in any industry or business organization are common. Major reasons for such layoffs are overhiring, inflation, high interest rates, etc. To help those unemployees, the Federal government has introduced the FUTA taxes. Unemployed workers receive payments from the FUTA when they lose their jobs. Employers must take complete responsibility for FUTA taxes.
Let's read more to know about the ins and outs of
FUTA taxes.
Key Takeways:
- One of the main federal payroll tax forms for employers is FUTA(Federal Unemployment Tax Act).
- FUTA tax is used to help the unemployed who lost their job without any fault on them.
- FUTA tax rate is 6% on the first $7000 paid to each employee.
- Employers who pay SUTA can claim a credit of 5.4%, which results in a 0.6% FUTA tax rate.
- FUTA taxes are paid quarterly and reported annually using Form 940(Employer's annual Federal unemployment tax return).