Your FUTA tax liability depends on total wages paid and whether your state carries a credit reduction. Enter your employee count, wages per worker, and any applicable credit-reduction percentage — the calculator estimates your annual federal unemployment tax cost immediately. This is an estimate, not tax advice — confirm with your CPA or state agency before filing.
FUTA funds the federal side of the unemployment insurance system. Every covered employer pays the tax on the first $7,000 of each employee's annual wages. The gross rate is 6.0%, but most employers receive a 5.4% credit for paying state unemployment taxes on time, bringing the effective rate down to 0.6%.
That means the maximum FUTA cost per employee is $42 per year when the full credit applies. Only the employer pays FUTA — it is never deducted from a worker's paycheck. You report and pay FUTA on IRS Form 940, which is filed annually, though deposits may be due quarterly if your liability exceeds $500 in a quarter. Understanding this base cost is the first step toward accurate employer payroll tax planning.
Most employers owe only the net 0.6% because they receive the full 5.4% FUTA credit. However, if your state borrowed from the federal unemployment trust fund and has not repaid within two years, the Department of Labor may designate it a credit-reduction state. In that case your credit shrinks and your effective FUTA rate rises.
The list of credit-reduction states changes every year — the DOL publishes the updated list each November. Rather than relying on last year's figures, check the current DOL announcement and enter the applicable reduction rate into the calculator above. Even a 0.3% reduction adds meaningful cost when multiplied across your entire workforce. If you operate in multiple states, calculate each state's employees separately and sum the results. Your SUTA obligations interact directly with this credit, so review both together.
FUTA deposits follow a quarterly schedule. If your accumulated FUTA liability exceeds $500 at the end of any calendar quarter, you must deposit by the last day of the following month. If your liability is $500 or less, carry it forward to the next quarter. At year-end, file Form 940 by January 31 — or February 10 if you have already deposited all FUTA taxes on time.
Late deposits trigger penalties that compound with interest, so tracking your quarterly liability matters. The calculator above helps you project your annual total, but break it into quarterly segments to manage cash flow. Use EFTPS (Electronic Federal Tax Payment System) for all deposits. Keeping a calendar reminder at each quarter-end prevents the kind of oversight that leads to a late deposit penalty.
The most frequent error is forgetting the $7,000 wage cap per employee. Once an employee earns past that threshold, no additional FUTA is due on their wages for the rest of the year. Overstating your liability wastes cash reserves. A second mistake is assuming the 5.4% credit is automatic — if you fail to file or pay your SUTA taxes on time, you can lose part or all of that credit, jumping from 0.6% back toward the full 6.0%.
Third, multi-state employers sometimes apply one state's credit-reduction rate to all employees instead of matching each employee to the correct state. Finally, misclassifying workers as independent contractors when they should be employees creates FUTA liability that you will owe retroactively if reclassified. Review your payroll setup at least annually. This calculator gives you a projection — always confirm details with your CPA or state agency.
The gross FUTA rate is 6.0% on the first $7,000 of each employee's annual wages. Most employers receive a 5.4% credit for timely state unemployment tax payments, resulting in a net effective rate of 0.6%.
Generally, any employer who pays $1,500 or more in wages during a calendar quarter, or who has at least one employee on any day in 20 different weeks, must pay FUTA. Certain nonprofit and government employers may be exempt.
A state that borrowed from the federal unemployment trust fund and did not repay within the required period. Employers in that state lose part of the 5.4% FUTA credit, increasing their effective rate. The DOL publishes the list annually.
No. FUTA is the federal unemployment tax paid to the IRS, while SUTA is the state unemployment tax paid to your state workforce agency. They work together, but the rates, wage bases, and filing requirements are different.