Form 940 FUTA and SUTA Tax Rates for 2025

What is FUTA on Form 940?

FUTA, the Federal Unemployment Tax Act with state unemployment systems, provides funds for unemployment compensation to workers who have lost their jobs. As an employer, you must pay FUTA taxes and report it on Form 940

What is SUTA on Form 940?

SUTA, the State Unemployment Tax is collected from employers in addition to federal unemployment taxes. The FUTA taxes are deposited to the federal government and SUTA taxes are deposited at the state level.

Generally, if you paid SUTA, you may receive a credit of up to 5.4% of FUTA taxable wages when you file your Form 940. If you're eligible for the maximum 5.4% credit, your FUTA tax rate will be 0.6%. This is applicable only if you have paid your state unemployment taxes in full by the Form 940 due date, and the state in which you have paid wages must not be classified as a credit reduction state.

How is FUTA calculated?

The FUTA tax rate is 6% of the first $7,000 from each employee's annual wages. Therefore, the FUTA tax contribution by an employer is not more than $420 for each employee.

Let's consider you have a company named “Lotus LLC” with 5 employees. Each of your employees earns an annual taxable income of $10,000, which brings the total wages to $25,000.

Calculation

Are there any exemptions from FUTA and SUTA taxes?

Yes, certain entities and employers are exempt from both FUTA and SUTA taxes. These exemptions include:

• Indian Tribal Government Employers: Specifically, those that have participated in the state unemployment system for the entire year.
• Tax-Exempt Charitable Organizations: Also known as 501(c)(3) organizations.
• State and Local Government Employers: Enjoy exemption from both FUTA and SUTA taxes.
• Household employers and agricultural employers are also exempt if they fall under certain criteria. Click here

In addition to this, individuals with H-2A, F-1, J-1, M-1, or Q-1 nonimmigrant status may be eligible for wage exemptions if they are engaged in providing certain types of exempt services.

What are the FUTA credit reduction states?

A state that has not repaid money borrowed from the federal government to pay unemployment benefits is classified as a credit reduction state. Employers in such a state must pay higher tax dues on IRS Form 940.

For example, if you are an employer in a credit reduction state with a rate of 0.3%. Then, your FUTA tax is calculated by reducing the 6.0% FUTA tax rate by a FUTA credit of only 5.1% (the standard 5.4% credit minus the 0.3% credit reduction) for an effective FUTA tax rate of 0.9% for the year.

Click here to know the updated rates of credit reduction states for the 2025 tax year.

When to deposit the FUTA taxes?

The due date to deposit FUTA tax depends on your FUTA tax liability. If your liability is less than $500, then you can deposit FUTA taxes annually. If your liability is $500 or more, you should deposit taxes quarterly.

Click here to learn the due dates for depositing FUTA taxes for the 2025 tax year.

Make Instant FUTA Tax Deposit!

TaxBandits offers a quick and secure option for making your FUTA tax deposits via EFTPS.

Streamline FUTA Tax Calculations and Form 940 Filing with TaxBandits!

You can minimize the risk of errors when calculating your FUTA tax with TaxBandits. Our automatic calculations remove the hassle of manual work, while built-in error checks help you stay compliant with error-free filing.

TaxBandits offers a complete solution for making FUTA tax deposits via EFTPS and filing Form 940 online, along with all required supporting forms.

To know how to pay FUTA taxes and e-file Form 940 with TaxBandits, click here.