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In the U.S., layoffs can occur in any industry or business organization. Common reasons for layoffs include overhiring, inflation, high interest rates, and economic downturns. To support workers who lose their jobs through no fault of their own, the federal government established the Federal Unemployment Tax Act (FUTA). FUTA helps fund unemployment benefit programs for eligible unemployed workers, while employers are responsible for paying FUTA taxes.
Let's take a closer look at the ins and outs of FUTA taxes.
Table of Content:
Key Takeways:
- FUTA (Federal Unemployment Tax Act) is a federal payroll tax paid by employers.
- 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).
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