How to Calculate FUTA Taxes

by Laura Chapman; Updated June 29, 2018

FUTA taxes, named for the Federal Unemployment Tax Act, are payments of a percentage of employees' wages that employers must pay. FUTA payments fund unemployment benefits for workers who lose their jobs.

Determining Liability for FUTA Taxes

Before you calculate FUTA taxes due on the wages paid to your employees, determine if you are subject to the tax. When determining your liability, you will need to review each quarter's total wages paid both in the current year and in the preceding one. You will owe FUTA taxes if you pay:

  • $1,500 or more in any calendar quarter to employees other than household or agricultural workers.
  • $1,000 in any calendar quarter to a household employee, such as a nanny or an in-home nurse.
  • $20,000 or more to a farm worker during any calendar quarter.

You will also be subject to FUTA tax if you had one or more employees for some part of a day, or 10 or more farm workers for some part of a day, for 20 weeks of the current or preceding year.

Calculating FUTA Taxes

If you are subject to FUTA tax, you must pay the current rate for up to the first $7,000 in wages for each employee. You must calculate the tax due on each employee's wages until they exceed the $7,000 threshold. The 2018 rate is 6 percent. You can decrease this federal rate by up to 5.4 percent of the rate you pay to your state, sometimes referred to as SUTA tax, or the State Unemployment Tax Act. If your state's rate is 4 percent, your federal rate will be 2 percent. If your state's rate is 8 percent, then your federal rate will be the minimum rate of 0.6 percent, because you can only take credit for the first 5.4 percent.

Assume the following:

  • Jane Jones earned $400 on this paycheck. Her earnings to date, including this paycheck, are $3,000. 
  • Eric West earned $450 on this paycheck. His earnings to date, including this paycheck, are $7,200.

You will owe FUTA tax on all $400 of Jane's paycheck. However, Eric will exceed the threshold by $200. You will only owe FUTA tax on $250 of his $450 this week. His wages for the rest of the year will not be subject to the tax. If you are in a state where you are paying 5.4 percent or higher, a federal rate of 0.6 percent will apply. You will multiply the total pay that is subject to the tax, 400 + 250 = 650, by 0.006. Your tax due is $3.90.

When to Deposit

You are not required to deposit the tax if your liability is $500 or less. You can continue to accumulate the liability from quarter to quarter for that year until it is more than $500. When you are required to deposit, you must do so within 30 days of the end of the quarter. Quarter 1 ends on March 31, with payments due April 30. Quarter 2 ends on June 30, with payments due July 31. Quarter 3 ends on September 30, with payments due October 31. Finally, quarter 4 ends on December 31, with payments due on January 31 of the following year.

Annual Form 940

Federal Form 940, the Employer's Annual Federal Unemployment Tax Return, is an annual information return that employers must submit to the IRS. In it, the employer reports total wages paid, wages that were exempt from the tax, total liability each quarter, and total payments submitted. An employer must also calculate whether there is still an amount due and submit that payment with the form. Be aware that employers may be required to submit payments exceeding $500 electronically through the EFTPS system. Payments of less than $500 may be mailed.


  • The maximum credit you can take for SUTA taxes is 5.4 percent.
  • Prior to July 2011, the FUTA tax rate was 6.2 percent of the first $7,000 of an employee's wages.
  • If you are computing the FUTA taxes on a household employee, use Publication 926.

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