Payroll taxes
What is FUTA?
Federal Unemployment Tax Act
FUTA funds federal oversight of the unemployment-insurance system and loans to state unemployment funds. It is an employer-only tax: nothing is withheld from the employee. The gross FUTA rate is 6.0% on the first $7,000 of each worker's annual wages, but employers who pay their state unemployment tax on time receive a 5.4% credit, dropping the effective rate to 0.6%.
Because it applies only to the first $7,000, FUTA is capped at a small amount per employee regardless of salary. It is one of the smaller line items in the fully-loaded cost of a hire, but it is mandatory in every state.
Example
At the effective 0.6% rate on the $7,000 wage base, FUTA costs an employer a maximum of $42 per employee per year.