FUTA Tax Calculator
Work out federal unemployment tax from headcount, annual wages, and your state credit rate.
What it does
Federal unemployment tax is an employer-only payroll tax. Employees do not pay it and it does not appear as a deduction on a paycheck. The money funds the federal side of the unemployment insurance system, including administrative costs and loans to state trust funds. Most small employers meet the obligation through Form 940 once a year, though deposits may be due quarterly.
The tax base is narrow. FUTA applies to the first $7,000 of wages paid to each employee during the calendar year, no matter how much the person earns after that. An employee paid $42,000 and an employee paid $7,500 both generate tax on $7,000. That cap is why the total depends on headcount as much as on payroll size.
The headline rate is 6.0 percent, but employers almost always receive a credit for paying state unemployment tax on time. The maximum credit is 5.4 percent, which brings the effective federal rate down to 0.6 percent. At that rate the tax is $42 per employee who reaches the wage base, so a ten-person shop owes $420 before any credit reduction.
The credit is not automatic in every state. If a state has borrowed from the federal unemployment account and has not repaid it, the state can be labeled a credit reduction state. Employers in that state lose part of the 5.4 percent credit, and the federal rate rises. The reduction is set each year and is reported on the state's own notice and on the Form 940 instructions.
This page multiplies the $7,000 base by the number of employees, applies the net rate, and shows the total, the taxable wage base, and the cost per employee. It assumes every employee reaches the wage base. Part-time and seasonal staff who earn less than $7,000 need a separate line, because their taxable wages are only what they actually earned.
How to use
- Enter the number of employees who received wages during the year.
- Enter annual gross wages per employee. The tool caps the taxable amount at $7,000 each.
- Enter the state credit rate. Use 5.4 percent unless your state is in credit reduction.
- Read the total FUTA tax, the taxable wage base, and the cost per employee.
- Check the current Form 940 instructions for your state's credit reduction rate before filing.
- Deposit the tax on the schedule that applies to your business, then report it on Form 940.
Formula
- Employees
- Number of employees paid wages during the calendar year.
- $7,000
- The FUTA wage base per employee.
- 6.0 %
- The gross FUTA rate before the state credit.
- Credit
- State credit, up to 5.4 percent, reduced in credit reduction states.
- Net rate
- 6.0 percent minus the credit, usually 0.6 percent.
The maximum credit is 5.4 percent only when the state unemployment tax is paid in full and on time. In a credit reduction state, the usable credit falls by the reduction rate, so the net federal rate rises above 0.6 percent. The $7,000 base is per employee, not per job, and it does not reset if an employee moves between departments. Wages include salaries, hourly pay, commissions, and most bonuses, but not certain exempt payments. Form 940 handles the details and any adjustments for employees who earned less than the base.
Worked example
Example: three employees at $42,000 each with a full state credit
A small business pays three employees $42,000 each during the year and receives the full 5.4 percent state credit.
- Taxable wages per employee: min($42,000, $7,000) = $7,000.
- Total taxable wages: 3 x $7,000 = $21,000.
- Net rate: 6.0 % - 5.4 % = 0.6 %.
- Total tax: $21,000 x 0.006 = $126.00.
- Tax per employee: $7,000 x 0.006 = $42.00.
- Check: 3 x $42.00 = $126.00.
- The extra $35,000 per employee above the base does not change the federal tax.
Reference table
| Employees | Taxable wages | FUTA tax | Tax per employee |
|---|---|---|---|
| 1 | $7,000 | $42.00 | $42.00 |
| 3 | $21,000 | $126.00 | $42.00 |
| 5 | $35,000 | $210.00 | $42.00 |
| 10 | $70,000 | $420.00 | $42.00 |
| 25 | $175,000 | $1,050.00 | $42.00 |
Limits
- Assumes every employee reaches the $7,000 wage base. Part-year staff often do not.
- Uses a single wage figure for all employees, so mixed payrolls need a separate total.
- Does not include state unemployment tax, which is a separate liability.
- The state credit rate changes in credit reduction states and must be checked each year.
Common mistakes
- Applying FUTA to the full annual payroll instead of the first $7,000 per employee.
- Using the 6.0 percent gross rate and forgetting the state credit.
- Claiming the full 5.4 percent credit in a credit reduction state.
- Treating FUTA as an employee withholding tax like Social Security.
- Counting contractors as employees when they are properly classified as self-employed.
Try it yourself
Quick checks. Answers sit tucked under each question.
One employee earns $9,000. What is the FUTA tax at the usual 0.6 percent net rate?
Taxable wages are $7,000. Tax = $7,000 x 0.006 = $42.00.
Five employees each earn $4,000. What is the FUTA tax?
Taxable wages are $4,000 each, so 5 x $4,000 = $20,000. Tax = $20,000 x 0.006 = $120.00.
Ten employees reach the wage base in a credit reduction state with a 0.3 percent reduction. What is the tax?
Usable credit is 5.1 percent, so the net rate is 0.9 percent. Taxable wages are $70,000. Tax = $70,000 x 0.009 = $630.00.
Questions
Who pays FUTA?
The employer pays it. It is not withheld from employee wages.
What is the FUTA wage base?
The first $7,000 of wages paid to each employee in the calendar year.
Why is the usual rate 0.6 percent?
The gross rate is 6.0 percent, and employers normally claim a 5.4 percent credit for state unemployment tax.
What is a credit reduction state?
A state that has not repaid federal unemployment loans can lose part of the credit, which raises the federal rate for employers there.
When is Form 940 due?
Generally January 31 for the prior calendar year, or February 10 if all deposits were made on time.
Do part-time employees count?
Yes. FUTA applies to each employee's actual wages up to $7,000, so part-time staff often produce less tax.