What is the federal unemployment tax (FUTA)?

As an employer, one of your responsibilities is paying the federal unemployment tax (FUTA). This tax helps fund unemployment benefits for workers who lose their jobs through no fault of their own. Unlike Social Security and Medicare taxes, FUTA tax is paid entirely by employers—it’s not deducted from employee wages.

Staying on top of FUTA tax ensures compliance with the IRS and prevents unnecessary penalties. The good news? If you’re already paying state unemployment taxes on time, you’ll likely qualify for a big tax credit that significantly reduces what you owe.

Who needs to pay FUTA tax?

Most employers must pay FUTA tax if they meet either of the following conditions:

• You paid $1,500 or more in wages to employees in any calendar quarter.
• You had one or more employees for at least 20 weeks in a year (this includes full-time, part-time, and temporary workers).

If your business meets these requirements, you’re responsible for filing Form 940 and paying FUTA tax.

How is FUTA tax calculated?

The FUTA tax rate is 6.0% on the first $7,000 of each employee’s annual wages. However, if you pay your state unemployment taxes on time, you can qualify for a tax credit of up to 5.4%, which reduces your effective FUTA tax rate to just 0.6%.

For example:

• If an employee earns $7,000 or more in a year, the maximum FUTA tax you’ll pay for that employee is $42 per year (assuming you qualify for the full tax credit).
• If an employee earns less than $7,000, you only pay FUTA tax on their actual earnings.

When are FUTA tax payments due?

FUTA tax payments are due quarterly if your total FUTA liability exceeds $500. If you owe less than $500 in a quarter, you can carry the balance over to the next quarter until you hit the $500 threshold.

Here’s the FUTA tax payment schedule:

• April 30 – For wages paid in January–March
• July 31 – For wages paid in April–June
• October 31 – For wages paid in July–September
• January 31 – For wages paid in October–December

If you owe less than $500 for the entire year, you can make a single payment when you file Form 940 by January 31 of the following year.

How to file and pay FUTA tax

To report FUTA tax, employers must file Form 940, the Employer’s Annual Federal Unemployment (FUTA) Tax Return. You can file Form 940:

• Online through the IRS E-File system
• By mail, if you prefer paper filing
• Through a payroll provider, like Homebase payroll, which automatically calculates and files FUTA taxes for you

If handling tax payments and filings feels overwhelming, Homebase payroll can take care of it for you—ensuring accuracy and compliance with IRS deadlines.

Try Homebase payroll today to automate payroll tax calculations and payments.

Common mistakes employers make with FUTA tax

Filing FUTA tax might seem straightforward, but small errors can lead to penalties or extra costs. Here are some common mistakes and how to avoid them:

• Missing payment deadlines – Late payments can result in IRS penalties and interest charges.
• Underpaying FUTA tax – If you don’t qualify for the full state tax credit, you may owe more than expected.
• Not filing Form 940 – Even if you paid FUTA tax, you still need to file the form annually.
• Incorrect wage calculations – FUTA tax only applies to the first $7,000 of each employee’s wages, so be sure you’re not overpaying.

Avoiding these mistakes keeps your business compliant and ensures you don’t pay more than necessary.

How Homebase helps with FUTA tax and payroll compliance

Managing payroll taxes—including FUTA—can feel like a hassle, but Homebase makes it easy. With Homebase payroll, you can:

• Automatically calculate FUTA tax based on employee wages.
• File Form 940 and other payroll tax forms without stress.
• Ensure on-time tax payments to avoid IRS penalties.
• Keep payroll records organized and compliant with federal regulations.

Sign up for Homebase today and simplify payroll, tax filing, and compliance—so you can focus on running your business.

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