Key Takeaways
- FUTA: employer-only tax, never withheld from wages.
- Rate: 6.0% on first $7,000 per employee.
- Credit: up to 5.4% if state UI paid timely → net 0.6%.
- Net FUTA per employee: $7,000 × 0.6% = $42.
- Credit reduction states: higher effective rate.
- Form 940: annual (due Jan 31). Deposit if >$500 quarterly.
Last updated: January 2026
FUTA & Unemployment Taxes
Why This Matters for the Exam
FUTA is employer-only. Know the wage base, credit calculation, and deposit rules.
Expect at least 2-3 questions on FUTA.
FUTA Basics
| Element | Amount |
|---|---|
| Rate | 6.0% |
| Wage base | First $7,000 per employee |
| Paid by | Employer only |
| Withheld from employee | NEVER |
The 5.4% Credit
| Component | Rate |
|---|---|
| Gross FUTA | 6.0% |
| State UI credit (max) | (5.4%) |
| Net FUTA | 0.6% |
Net FUTA Calculation
| Employee Wages | Taxable Wages | × 0.6% | FUTA Due |
|---|---|---|---|
| $50,000 | $7,000 | × 0.6% | $42 |
| $7,000 | $7,000 | × 0.6% | $42 |
| $5,000 | $5,000 | × 0.6% | $30 |
Credit Reduction States
| Rule | Effect |
|---|---|
| State borrowed from federal | Credit reduced |
| Reduction per year | 0.3% |
| Result | Higher effective FUTA rate |
Credit Reduction Example
| Component | Rate |
|---|---|
| Gross FUTA | 6.0% |
| Standard credit | (5.4%) |
| Reduction (2 years) | +0.6% |
| Net credit | 4.8% |
| Effective FUTA | 1.2% |
Form 940
| Element | Requirement |
|---|---|
| Form | Employer's Annual FUTA Tax Return |
| Due date | January 31 |
| Deposit | Quarterly if >$500 liability |
Deposit Rules
| Quarterly Liability | Action |
|---|---|
| >$500 | Deposit by end of next month |
| ≤$500 | Carry to next quarter |
Quarterly Deposit Example
| Quarter | Liability | Deposit Required? |
|---|---|---|
| Q1 | $102 | No (carry) |
| Q2 | $350 | No (cumulative $452) |
| Q3 | $200 | Yes (cumulative $652 > $500) |
Real-World Scenario
Scenario: Employer pays $50,000 to one employee in 2024. State UI paid timely. No credit reduction.
- Taxable wages: $7,000 (first $7,000 only).
- Gross FUTA: $7,000 × 6.0% = $420.
- Credit: $7,000 × 5.4% = $378.
- Net FUTA: $420 - $378 = $42.
On the Exam
Expect 2-3 questions on FUTA, typically:
- Calculation Questions: "$50,000 wages—FUTA due?"
- Form Questions: "Which form for annual FUTA?"
- Deposit Questions: "When is FUTA deposit required?"
The key is to remember: 6.0% on first $7,000. Credit 5.4% → net 0.6% = $42. Form 940 annual. Deposit if >$500 quarterly.
Test Your Knowledge
Employee earns $50,000. Employer in state with no credit reduction. FUTA due?
A
B
C
D
Test Your Knowledge
Which form reports annual FUTA liability?
A
B
C
D
Test Your Knowledge
When is FUTA deposit required?
A
B
C
D