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Know the Federal Unemployment (FUTA) Tax Rate 2022 & 2023, wage base limit, Credits, calculations, due date etc.
- Updated on Feb 08, 2023 - 11:00 AM by 123PayStubs Team
The Federal Unemployment Tax Act (FUTA) is the law that requires employers to pay payroll taxes that provides unemployment compensation to workers who have lost their jobs. The FUTA tax is calculated based on employee wages, and there is no deduction from the employee's paycheck. It is the employer who is responsible for withholding and depositing taxes on time. Employers report FUTA tax by filing an annual Form 940 with the IRS.
The following topics covered in this article.
Federal Unemployment Tax Act (FUTA) taxes funds the unemployment insurance and job service program available in each state. The funds provide compensation for workers who lose their jobs. Though FUTA tax is a payroll tax, it is different from the FICA taxes in the sense that only the employer contributes toward the FUTA taxes.
No amount is deducted from an employee's paycheck towards FUTA taxes.
The Federal Unemployment Tax Act (FUTA) requires the employers to pay the FUTA taxes quarterly and report the same on Form 940 annually.
The FUTA tax rate protection for 2022 & 2023 is 6% as per the IRS standards. The FUTA tax applies to the first $7,000 of wages paid to each employee throughout the year.
The first $7,000 for each employee will be the taxable wage base limit for FUTA.
Once an employee’s year to date gross earning reaches $7,000 for the year, then the employer can stop paying FUTA tax.
Consider an employer having 10 employees. Let’s see how to calculate the FUTA tax.
The maximum FUTA tax credit is 5.4%. If the employer is eligible for the maximum credit, it means that the tax rate will be only 0.6% i.e: 6% minus 5.4%.
An employer who qualifies for the full tax credit will have a tax rate of 0.6%. This results in the minimum amount of FUTA tax of $42 per employee.
| States | 2020 | 2021 | 2022 |
|---|---|---|---|
| California (CA) | 0.0% | 0.0% | 0.3% |
| Connecticut (CT) | 0.0% | 0.0% | 0.3% |
| Illinois (IL) | 0.0% | 0.0% | 0.3% |
| New York (NY) | 0.0% | 0.0% | 0.3% |
| U.S. Virgin Islands (VI) | 3.0% | 3.3% | 3.6% |
Usually, the FUTA tax payments are due by the end of the last month following the end of the quarter. The employer has to make the payments to the IRS on time.
Note: If the FUTA tax liability of your business for a quarter is less than $500, there’s no need to deposit taxes at the end of the quarter. You may roll over the tax liability to the next quarter and pay the tax amount if the liability exceeds the $500 threshold.
The IRS mandates employers to report the FUTA tax on Form 940, Employer’s Annual Federal Unemployment Tax Return. The form is used to report to the IRS the FUTA taxes withheld for the year the payments made each quarter.
Form 940 is due by January 31 every year. In case you have deposited FUTA taxes on time for all quarters, you may file the form by February 10.
You may choose to add FUTA taxes paid for an employee in their pay stubs. With 123PayStubs, you can easily add the employer-paid taxes such as FUTA, SUTA, and other state-specific employer-paid taxes to the pay stubs, along with accurate tax calculations. Click here to know how to add FUTA taxes to pay stubs.
