The Federal Unemployment Tax Act, or FUTA, imposes a tax on employers to provide benefits for workers who lose their jobs. As of early 2011, that tax was 6.2 percent of the first $7,000 of each worker's wages, dropping to 6.0 percent in July 2011. Employers generally must pay FUTA taxes four times a year: by January 31, April 30, July 31 and October 31. Only employers pay FUTA taxes, not employees.
Figuring the Tax
The Internal Revenue Service requires employers to figure their FUTA taxes on a quarterly basis. At the end of each calendar quarter, add up the total amount of wages you paid each employee, and multiply that figure by the tax rate. You pay FUTA taxes only on the first $7,000 in wages paid to any employee in a year. So once a worker's annual wages have reached $7,000, you should no longer include that worker in your FUTA calculations. The federal government allows you to reduce your FUTA taxes for an employee if you also paid state unemployment taxes on that worker -- which is usually the case. You can take a credit of up to 5.4 percent of that worker's wages up to $7,000.
FUTA taxes are due by the last day of the month that follows the end of the calendar quarter. For the quarter that runs from January to March, the due date is April 30. For the April-June quarter, the due date is July 31. For the July-September quarter, the due date is October 31. And for the October-December quarter, FUTA taxes are due January 31. Further, every year, you must file IRS Form 940, the Employer's Annual Federal Unemployment (FUTA) Tax Return. Use this form to report how much you paid your employees, how much you owe in FUTA taxes, and how much you deposited over the year. Form 940 is due January 31.
Depositing and Reporting the Tax
If your total FUTA taxes for a quarter add up to more than $500, you must deposit those taxes by the due date. Use the Electronic Federal Tax Payment System to make your deposits (see Resources). If the total FUTA taxes for any of the first three quarters of the year is $500 or less, you don't have to make a deposit, and you can carry the tax to the next quarter. If your FUTA tax bill for the fourth quarter -- October to December -- is $500 or less, you can make a regular deposit, or pay the bill when you file your annual Form 940.
State Unemployment Taxes
The unemployment compensation program gets its funding from both federal and state taxes. Each state assesses its own unemployment tax on employers, separate from FUTA, with its own tax rates and payment schedule. Three states -- Alaska, New Jersey and Pennsylvania -- also require employees to pay unemployment taxes, which their employers are responsible for withholding from their pay and forwarding to the government. The U.S. Department of Labor maintains a list of phone numbers and websites of state agencies that collect unemployment tax (see Resources).