Per Diem Rates from the U.S. General Services Administration
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Rates are set by fiscal year, effective October 1 each year. Find current rates in the continental United States ("CONUS Rates").
Who Pays Federal Unemployment Taxes (FUTA)?
FUTA stands for Federal Unemployment Tax Act. FUTA taxes are an employer-paid tax and not withheld from an employee's gross pay. The maximum wage base for computing FUTA tax is the first $7,000 of each employee's gross pay. When an employee's gross pay exceeds $7,000, no FUTA tax is assessed on the wages that exceed $7,000. For example, if your gross wages are $15,000, FUTA tax only applies to the first $7,000 and not the additional $8,000.
Gross FUTA Rate and Maximum FUTA Credit
For tax year 2023 and 2024, the gross FUTA tax rate is 6.0% (.06). However, most employers get a maximum FUTA credit of up to 5.4% (.054) against the FUTA tax, bringing the effective FUTA rate down to as low as 0.6% (.006).
Employer's are entitled to the maximum credit of up to 5.4% if all state unemployment taxes were paid by the due date of Form 940 or if state unemployment tax was not required to be paid during the calendar year due to the business's experience rate . These rules also apply to the District of Columbia, Puerto Rico, and the U.S. Virgin Islands.
Experience rating assigns an unemployment insurance tax rate (experience rate) to employers who have paid covered wages for a sufficient period to rate their experience with unemployment insurance. If an employer's workers experience less unemployment, the employer will pay a lower unemployment insurance tax rate.
When the Standard 5.4% FUTA Credit May Be Reduced or Not Even Apply
Credit Reduction States:
A state that fails to repay funds borrowed from the federal government to pay unemployment benefits is called a credit reduction state. If your state is a credit reduction state, the 5.4% standard FUTA credit, which serves to reduce to maximum gross FUTA rate of 6.0%, may be reduced. In 2023, three jurisdictions, California, New York and the Virgin Islands, were subject to a FUTA credit reduction because they did not repay their FUTA loan balance by November 10, 2023. Connecticut and Illinois repaid their loan balances just prior to the November 10 deadline.
States Not Subject to Unemployment Tax:
If any wages subject to FUTA tax are not subject to state unemployment tax, you may be liable for the maximum FUTA tax rate of 6.0%. For example, in certain states, wages paid to corporate officers, certain payments of sick pay by unions, and certain fringe benefits are excluded from state unemployment tax.
State Unemployment Taxes
State unemployment taxes are sometimes called contributions. These contributions are payments that a state requires employers to make to its unemployment fund for the payment of unemployment benefits. Some states withhold state unemployment taxes from employees' gross pay. Currently employees in three states are subject to unemployment tax withholding - Alaska, New Jersey, and Pennsylvania.
Due Date for Filing Form 940
The due date for filing Form 940 for any year is January 31 of the following year, unless the 31st falls on a weekend. If you deposited all your FUTA taxes when due, you have 10 additional calendar days to file Form 940. You must make FUTA deposits by the last day of the month following any quarter in which the FUTA tax liability exceeds $500.
If the IRS receives your return after the due date, it will treat your return as filed on time if the envelope containing your return is properly addressed, contains sufficient postage, and is postmarked by the U.S. Postal Service on or before the due date or sent by an IRS-designated private delivery service on or before the due date.
If you don't follow these guidelines, the IRS will consider your return filed when it is actually received. For a list of IRS-designated private delivery services, see Pub. 15.
You may pay your FUTA tax shown on line 14 using a major credit card. However, do not use a credit card to pay taxes that are required to be deposited.
What are FUTA Funds Used For?
FUTA tax combined with state unemployment tax provide funds for paying unemployment compensation to workers who have lost their jobs. Most employers pay both a federal and a state unemployment tax. Form 940 is used to report your annual FUTA tax.