Federal Unemployment Tax Act


Federal Unemployment Tax Act

The Federal Unemployment Tax Act (or FUTA, usc-title-chap|26|23) is a United States federal law that imposes a federal employer tax used to fund state workforce agencies. Employers report this tax by filing an annual Form 940 with the Internal Revenue Service. In some cases, the employer is required to pay the tax in installments during the tax year.

FUTA covers the costs of administering the unemployment insurance (UI) and job service programs in all states. In addition, FUTA pays one-half of the cost of extended unemployment benefits (during periods of high unemployment) and provides for a fund from which states may borrow, if necessary, to pay benefits.

For years through December 31, 2008, the FUTA imposes a 6.2% tax on the employer for the first $7,000 of gross earnings of each worker per year, with the rate changing to 6.0% for compensation paid during 2009 and later years. [See usc|26|3301. Note: As of mid April 2008, the text of the statute in the linked material at the Legal Information Institute at Cornell University Law School has not yet been updated to reflect amendments to the Internal Revenue Code made by paragraphs (1) and (2) of subsection (a) of section 1501 of the Energy Independence and Security Act of 2007, Pub. L. No. 110-140 (Dec. 19, 2007), which makes the 6.2% rate applicable to 2008 compensation with the 6.0% rate applicable beginning in 2009.] Once the worker's earnings reach $7,000 during a given year, the employer no longer pays any Federal unemployment tax for that year with respect to that worker. Certain credits are allowed with respect to state unemployment taxes paid that may reduce the effective rate to 0.8%.

Notes

See also

* Surtax

External links

* [http://www.irs.gov/pub/irs-pdf/f940.pdf Printable FUTA form 940 from IRS.gov]


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