Glossary · Payroll
FUTA
FUTA is the US federal unemployment tax, paid by employers only, under the Federal Unemployment Tax Act. The rate is 6.0% on the first $7,000 of each employee's wages a year, but employers that pay their state unemployment tax in full and on time get a credit of up to 5.4%, leaving a net 0.6%.
Glossary / FUTA · Also called Federal unemployment tax
How it works
FUTA funds the federal share of unemployment benefits. Nothing is withheld from the employee. At the net 0.6% rate, the most an employer pays per employee in a year is $42. If a state has borrowed from the federal government to pay benefits and not repaid it, employers there get a smaller credit (a credit reduction), which raises their FUTA.
FUTA is reported once a year on Form 940, due January 31 (or February 10 if all the tax was deposited on time). Deposits are made quarterly once the accumulated liability passes $500; smaller amounts carry forward to the next quarter.
Worked example: Three employees
A landscaping company pays three employees $45,000, $28,000 and $5,000 in the year. FUTA applies to the first $7,000 of each: $7,000 + $7,000 + $5,000 = $19,000 of taxable wages. At 0.6% the FUTA is $114 for the year.
Because the total never passes $500, the company can carry it forward each quarter and pay it with Form 940 in January.
| Employee | Wages | FUTA wages | FUTA at 0.6% |
|---|---|---|---|
| A | $45,000 | $7,000 | $42 |
| B | $28,000 | $7,000 | $42 |
| C | $5,000 | $5,000 | $30 |
| Total | $78,000 | $19,000 | $114 |
In AcboBooks
In a US company, AcboBooks can accrue FUTA at 0.6% up to $7,000 per employee on every paycheck, as an expense and a payroll liability, so Pay Liabilities shows what is owed for Form 940. It also prepares a Form 940 worksheet. It does not apply credit reductions automatically.
Related terms
Related on this site
Sources
- IRS Topic no. 759, Form 940: Employer's Annual Federal Unemployment (FUTA) Tax Return
- IRS Publication 15 (2026), Employer's Tax Guide
Updated October 25, 2026. General information, not tax, legal or accounting advice. Rules and rates change; check with the IRS, the CRA, your state or province, or your accountant.
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