• The Federal Unemployment Tax Act (FUTA) is a law that imposes a payroll tax on any business with employees; the income generated is used to fund unemployment benefits.

  • As of 2021, the FUTA tax rate is 6% on the first $7,000 paid annually to each employee.
  • Although the FUTA payroll tax is based on the wages of employees, it is only levied on employers and not on their employees.
  • FUTA and SUTA are similar taxes, just levied on different levels of government, while FUTA and FICA fund completely different programs by charging different people. – Employers who also pay State Unemployment Insurance may receive a federal tax credit of up to 5.4%, resulting in an effective FUTA tax rate of 0.6%.