FUTA tax is the federal unemployment tax that employers pay under the Federal Unemployment Tax Act. For 2026 it is 6% of the first $7,000 each employee earns, but most employers get a 5.4% credit for state unemployment tax, so they pay 0.6%: at most $42 per employee a year.
In brief: only the employer pays FUTA; it is never taken out of an employee’s paycheck. It funds unemployment benefits together with state unemployment tax. Most small employers owe so little that they pay it once a year with Form 940, unless their state is a credit reduction state.
What is FUTA tax?
FUTA stands for the Federal Unemployment Tax Act. The tax it sets, often called the federal unemployment tax, works with each state’s unemployment system to pay unemployment compensation to workers who have lost their jobs. Most employers pay both a federal and a state unemployment tax (IRS Publication 15).
FUTA is an employer tax. The IRS says only the employer pays it and it is not withheld from the employee’s wages, so it is not a paycheck deduction like Social Security (OASDI), Medicare or federal income tax.
What is the FUTA tax rate for 2026?
The FUTA tax rate for 2026 is 6% on the first $7,000 of wages paid to each employee during the year. That $7,000 is the federal wage base; your state’s unemployment wage base may be different.
Employers can take a credit of up to 5.4% of FUTA wages for state unemployment tax they paid. You get the full credit if you paid your state tax in full, on time and on the same wages, and your state is not a credit reduction state. That leaves a FUTA rate of 0.6%.
| Item | 2026 |
|---|---|
| FUTA tax rate | 6% |
| Maximum credit for state unemployment tax | 5.4% |
| Rate after the full credit | 0.6% |
| Wage base per employee | $7,000 |
| Most FUTA per employee at the full credit | $42 |
Who pays FUTA tax?
Employers pay FUTA when they meet one of three tests in the current or the previous year (Pub 15, section 14). Once you meet a test, you owe FUTA on the wages you pay employees in that category for the whole year:
- General test: you paid wages of $1,500 or more in any calendar quarter, or had at least one employee for some part of a day in 20 or more different weeks.
- Household employees: you paid total cash wages of $1,000 or more to household workers, such as a nanny or housekeeper, in any calendar quarter.
- Farmworkers: you paid cash wages of $20,000 or more to farmworkers in any calendar quarter, or employed 10 or more farmworkers during some part of a day in 20 or more different weeks.
Independent contractors are not employees, so payments to them are not FUTA wages. Some employers are exempt: most 501(c)(3) charities, and some family employment, such as a child under 21 working for a parent, a parent working for their child or a spouse working for a spouse (Form 940 instructions).
How to calculate FUTA tax
For each employee, count wages only until they reach the $7,000 wage base for the year. Add those amounts up and multiply by 0.6% if you get the full state credit. An employee who earns more than the wage base costs $42 in FUTA for the year, whatever their salary.
Because the wage base is reached early, almost all FUTA is owed in the first quarter or two. Here is a small bakery with three staff paid the same each month, calculated quarter by quarter:
| Quarter | FUTA wages | FUTA tax | Owed so far, and what to do |
|---|---|---|---|
| Q1 | $15,850 | $95.10 | $95.10 Carry forward |
| Q2 | $2,050 | $12.30 | $107.40 Carry forward |
| Q3 | $1,950 | $11.70 | $119.10 Carry forward |
| Q4 | $1,150 | $6.90 | $126.00 Pay with Form 940 by February 1, 2027 |
| Year | $21,000 | $126.00 | |
| If the bakery were in California and the potential 5.3% credit reduction became final | +$1,113.00 with Form 940 | ||
The head baker and the counter lead both pass the wage base in the first quarter, so after that only the part-time helper’s wages still count. The bakery’s whole FUTA bill for the year is three times the per-employee maximum.
When is FUTA tax paid?
FUTA is figured every quarter but deposited only when it adds up. If the FUTA you owe is more than $500 at the end of a quarter, deposit it by the last day of the month after that quarter. If it is $500 or less, carry it to the next quarter.
At the full credit rate, an employer only passes $500 once 12 employees have reached the wage base, so many small businesses never make a quarterly deposit. They pay the year’s FUTA with Form 940, the annual FUTA return.
The 2026 Form 940 is due February 1, 2027. If you deposited all your FUTA on time, you have until February 10, 2027. Our Form 940 guide walks through the return line by line. Income tax, Social Security and Medicare are reported separately each quarter on Form 941.
What is a FUTA credit reduction state?
A state that borrowed from the federal government to pay unemployment benefits and has not repaid the loan becomes a credit reduction state. Employers there get a smaller credit, so their FUTA rate is higher than 0.6%, and they pay the extra on Form 940 for the year (U.S. Department of Labor).
| State | Credit reduction | FUTA rate after credit |
|---|---|---|
| California | 5.3% (estimate) | 5.9% |
| U.S. Virgin Islands | 4.8% | 5.4% |
The Department of Labor confirms the final list after November 10, 2026, when a state’s last chance to repay has passed. Its January list names these as potential 2026 credit reduction states; the California figure is an estimate and can change.
FUTA vs SUTA vs FICA
All three are payroll taxes, but they differ in who pays and what they fund. FUTA and state unemployment tax (SUTA) are mainly employer taxes for unemployment benefits (DOL: financing of UI). FICA is Social Security and Medicare, which employers and employees each pay.
| Tax | Who pays | What it funds |
|---|---|---|
| FUTA | Employer only, never withheld | Federal share of unemployment insurance |
| SUTA | Employer; employees too in Alaska, New Jersey and Pennsylvania | State unemployment benefits |
| FICA | Employer and employee, each a share withheld or paid | Social Security and Medicare |
Because FUTA is never withheld, it does not appear in the deductions on a pay stub, and our pay stub generator leaves it out. Employers record it in their own payroll books, for example on a payroll register.
