How to Calculate Federal Unemployment Tax: Rate, Wage Base, and Filing

To calculate federal unemployment tax, take each employee’s wages up to the first $7,000 you paid them this year, multiply by your net FUTA rate (0.6% for most employers), and add the results across your whole payroll. At the standard rate, that comes out to a maximum of $42 per employee per year. The tax is paid entirely by the employer — nothing is withheld from worker paychecks — and reported once a year on Form 940.¹

The Formula

FUTA has three moving parts: a per-employee wage cap, a rate, and a sum across your workforce.

For each employee, the taxable wages equal the lesser of what you paid them for the year or $7,000. Multiply that figure by your net rate. Add every employee’s result together, and that is your annual FUTA liability.

The rate is where most of the variation happens, so start there before running any numbers.

The $7,000 Wage Base

FUTA tax applies only to the first $7,000 you pay each employee in a calendar year.² Once a worker’s year-to-date pay crosses that line, you stop accruing FUTA on any further wages for that person. The $7,000 is set by federal statute and does not adjust for inflation.

Taxable wages include salaries, hourly pay, commissions, bonuses, vacation allowances, and taxable fringe benefits.³ Signing bonuses and payments for canceling an employment contract count too. Payments to independent contractors do not, because no employer-employee relationship exists.⁴

Several common benefits are excluded from FUTA wages and should not be included in the calculation: employer contributions to health plans and HSAs, contributions to qualified retirement plans, group-term life insurance up to $50,000, dependent care assistance, educational assistance, and de minimis fringe benefits.⁵

Track each employee’s cumulative pay through the year. For most full-time workers, the $7,000 mark is hit early, which means the bulk of your FUTA liability lands in the first and second quarters.

The Rate: 6.0% Gross, 0.6% Net

The statutory FUTA rate is 6.0% of taxable wages.⁶ Almost no one actually pays that. Employers who pay their state unemployment taxes on time and in full receive a credit of up to 5.4%, dropping the effective federal rate to 0.6%.⁴ To claim the full credit, your state unemployment contributions must be deposited into an approved state fund by the Form 940 filing deadline.

At 0.6%, the math on a fully taxable employee is: $7,000 × 0.006 = $42.⁷ An employee who earned less than $7,000 for the year generates proportionally less: multiply their actual wages by 0.006.

Credit Reduction States Change the Rate

When a state borrows from the federal government to pay unemployment benefits and hasn’t repaid the loan within two years, the 5.4% credit for employers in that state is trimmed. The reduction starts at 0.3% and grows by another 0.3% for each additional year the debt remains outstanding.⁸ A 0.3% reduction lifts your effective FUTA rate from 0.6% to 0.9%, taking the per-employee maximum from $42 to $63.

For the 2025 tax year, California employers face a credit reduction of 1.2% and U.S. Virgin Islands employers face a 4.5% reduction.⁹ The 2026 list won’t be finalized until November 10, 2026, the statutory deadline for states to repay outstanding loans.¹⁰ If you operate in a credit reduction state, the extra tax is computed on Schedule A (Form 940).

Before you calculate, confirm two things: what your net rate is (0.6% or something higher), and whether you paid your state unemployment tax on time. Those two answers set the rate you use across the whole payroll.

A Worked Example

Assume you have three employees and you pay state unemployment tax on time in a state with no credit reduction. Your net FUTA rate is 0.6%.

Employee A earned $55,000. Taxable FUTA wages: $7,000. Tax: $42.
Employee B earned $7,000. Taxable FUTA wages: $7,000. Tax: $42.
Employee C worked part-time and earned $4,000. Taxable FUTA wages: $4,000. Tax: $24.

Total taxable wages: $18,000. Total FUTA liability: $108 for the year.

Now assume the same payroll in a state with a 0.3% credit reduction. Your net rate is 0.9%, and the same three employees generate $63 + $63 + $36 = $162.

The pattern holds no matter how many employees you have. Cap each person at $7,000 of wages, apply your net rate, and sum.

Depositing and Filing

The calculation runs continuously through the year because FUTA is deposited quarterly, not paid in one shot with the annual return. At the end of each calendar quarter, figure your accrued FUTA liability. If the cumulative amount you owe (including any carry-over from earlier quarters) exceeds $500, you must deposit it by the last day of the following month.¹¹ The deadlines:

First quarter (January–March): deposit by April 30
Second quarter (April–June): deposit by July 31
Third quarter (July–September): deposit by October 31
Fourth quarter (October–December): deposit by January 31

If liability is $500 or less at the end of a quarter, carry it forward to the next quarter. If the balance still hasn’t crossed $500 by year-end, you can pay it when you file Form 940.¹² All FUTA deposits must be made electronically, through EFTPS, Direct Pay for businesses, or your IRS business tax account.

Form 940 is the annual return that reconciles your total FUTA tax against what you deposited during the year.¹ It’s due January 31 of the following year. When January 31 falls on a weekend or federal holiday, the deadline shifts to the next business day; for the 2025 tax year, the due date is February 2, 2026. If you deposited all of your FUTA tax on time throughout the year, you get an extra 10 days to file.¹³

Who This Doesn’t Apply To

Not every employer runs this calculation. You only owe FUTA if you paid $1,500 or more in wages during any calendar quarter, or had at least one employee for some part of a day in 20 or more different weeks, in the current or preceding calendar year.² Household and agricultural employers have their own thresholds. And organizations recognized as tax-exempt under section 501(c)(3) don’t owe FUTA at all — the exemption is automatic and can’t be waived.¹⁴ State and local governments and federally recognized tribal governments are also exempt.

If your business clears the filing thresholds and isn’t exempt, the calculation itself is simple arithmetic once you have the two inputs right: the net rate that applies to you, and each employee’s wages up to $7,000.

1
Internal Revenue Service. About Form 940, Employers Annual Federal Unemployment (FUTA) Tax Return
2
Office of the Law Revision Counsel. 26 USC 3306 – Definitions
3
Internal Revenue Service. Publication 15 (2026), Circular E, Employers Tax Guide
4
Internal Revenue Service. Topic No. 759, Form 940 – Filing and Deposit Requirements
5
Internal Revenue Service. Employers Tax Guide to Fringe Benefits
6
Office of the Law Revision Counsel. 26 USC Ch. 23 – Federal Unemployment Tax Act
7
U.S. Department of Labor. Unemployment Insurance Tax Topic
8
Internal Revenue Service. FUTA Credit Reduction
9
Federal Register. Notice of the Federal Unemployment Tax Act (FUTA) Credit Reductions Applicable for 2025
10
U.S. Department of Labor. FUTA Credit Reductions
11
Internal Revenue Service. Employment Tax Due Dates
12
Internal Revenue Service. Depositing and Reporting Employment Taxes
13
Internal Revenue Service. Instructions for Form 940
14
Internal Revenue Service. Exempt Organizations – What Are Employment Taxes