How to Pay Federal Unemployment Tax: EFTPS Deposits and Form 940

To pay federal unemployment tax, calculate your FUTA liability at 6% on the first $7,000 of each employee’s wages (usually reduced to an effective 0.6% by the state unemployment tax credit), deposit the tax electronically through EFTPS by the last day of the month after any quarter in which your cumulative liability exceeds $500, and reconcile the full year on IRS Form 940 by January 31. The tax comes entirely out of the employer’s pocket; nothing is withheld from employee paychecks.

Confirm You Owe FUTA in the First Place

Before you deposit anything, check whether you meet one of the liability tests. For general business employers, either paying $1,500 or more in wages in any calendar quarter of the current or preceding year, or employing at least one person for some part of a day in 20 or more different weeks in the current or preceding year, makes you liable.¹

Household employers cross the threshold at $1,000 in cash wages in any calendar quarter during 2025 or 2026, counted across all household employees combined.² Agricultural employers are liable only at $20,000 in cash wages in a quarter, or 10 or more farmworkers in 20 different weeks; H-2A wages count toward the threshold test but are not themselves subject to FUTA.³

One boundary worth stating plainly: 501(c)(3) organizations are exempt from FUTA and cannot waive that exemption. Other tax-exempt entities, including 501(c)(4) and 501(c)(6) organizations, pay FUTA like any other employer.⁴

Figure Out How Much You Owe

The statutory rate is 6% on the first $7,000 of wages you pay each employee during the year.⁵ Once an employee’s year-to-date wages hit $7,000, no more FUTA accrues on that person.¹

Almost no employer actually pays 6%. Pay your state unemployment tax in full and on time and you get a credit of up to 5.4%, which drops the effective FUTA rate to 0.6% and caps the tax at $42 per employee per year.⁶ The state payment timing is what protects that credit: if your state deposits are late, the credit shrinks and your federal bill grows.

Credit Reduction States

If your state has an unpaid federal unemployment loan outstanding for more than two years, it becomes a credit reduction state and the 5.4% credit drops by 0.3% for each additional unpaid year. A 0.3% reduction pushes your effective rate to 0.9% instead of 0.6%.⁷

Wages That Don’t Count

Several categories of pay are excluded from the $7,000 taxable base, and missing them means overpaying. The most common exclusions:

Employer contributions to a SEP, and employer match or nonelective contributions to a SIMPLE plan. Employee salary reduction contributions to a SIMPLE or SARSEP remain subject to FUTA.
Workers’ compensation payments for a work-related injury or illness.
Sick pay paid more than six calendar months after the last month the employee worked. A brief return to work resets the clock.
Employer payments into plans covering sickness, accident disability, medical expenses, or death benefits.
Qualified scholarship amounts used for tuition, fees, books, and required supplies. Payments for teaching or research services are not exempt.

These come from the statutory definition of wages in 26 U.S.C. § 3306(b) and IRS supplemental guidance.⁹ On Form 940, exempt payments come off on line 4.

Deposit the Tax Quarterly Through EFTPS

FUTA deposits run on a quarterly schedule tied to a $500 threshold. At the end of each quarter, add up your undeposited FUTA liability. If it’s more than $500, deposit the full amount by the last day of the following month:¹⁰

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 your cumulative liability at quarter-end is $500 or less, you don’t deposit. Roll the balance forward until a quarter takes you over $500, then deposit for that quarter. If your total FUTA for the whole year stays at or under $500, skip deposits entirely and pay the amount with Form 940.

All FUTA deposits must be made electronically. The IRS accepts payment through EFTPS (the Electronic Federal Tax Payment System), IRS Direct Pay, or your IRS business tax account. A payroll service, tax professional, or financial institution can also submit on your behalf. EFTPS is free; third parties may charge a fee.¹¹ Enroll in EFTPS before your first deposit is due, because new enrollments take several days to activate.

File Form 940 to Reconcile the Year

Form 940 is due by January 31 of the year after the tax year. Deposit everything on time throughout the year and you get an automatic extension to February 10. If either deadline lands on a weekend or legal holiday, the next business day counts as timely.¹²

Before you start, pull together your EIN, full-year payroll records, and proof of every state unemployment tax payment you made.

Part 1 asks where you paid state unemployment tax. Single-state employers put the state abbreviation on line 1a. Multi-state employers or those in a credit reduction state check line 1b or line 2 and complete Schedule A.⁸

Part 2 is the calculation. Line 3 is total payments to all employees. Line 4 is exempt payments. Line 5 backs out wages above the $7,000 per-employee cap. Line 7 gives you total taxable FUTA wages, and multiplying by 0.006 puts your base tax on line 8. Credit-reduction tax from Schedule A gets added on line 9.¹

Part 4 reports your FUTA liability by quarter based on when you paid wages, not when you deposited. Part 5 shows the deposits you actually made, and the difference is either a balance due or a refund.

What It Costs to Be Late

Two separate penalties apply, and they can run at the same time.

The failure-to-file penalty is 5% of the unpaid tax for each month or partial month the return is late, capped at 25%.¹³

The failure-to-deposit penalty is tiered by how late the deposit is:¹⁴

1–5 days late: 2% of the unpaid deposit
6–15 days late: 5% of the unpaid deposit
More than 15 days late: 10% of the unpaid deposit
After an IRS notice demanding payment: 15% of the unpaid deposit

The tiers replace each other rather than stack. A deposit that’s 20 days late incurs 10%, not the sum of the earlier tiers. Interest compounds daily on unpaid balances from the due date until you pay.

1
Office of the Law Revision Counsel. 26 USC 3306 – Definitions
2
Internal Revenue Service. Publication 926 (2026), Household Employer’s Tax Guide
3
Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide
4
Internal Revenue Service. Exempt Organizations: What Are Employment Taxes
5
Office of the Law Revision Counsel. 26 USC 3301 – Rate of Tax
6
Office of the Law Revision Counsel. 26 USC 3302 – Credits Against Tax
7
Internal Revenue Service. About Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return
9
Internal Revenue Service. Publication 15-A (2026), Employer’s Supplemental Tax Guide
10
Internal Revenue Service. 2025 Instructions for Form 940
11
Internal Revenue Service. Instructions for Form 940
12
Internal Revenue Service. Topic No. 759, Form 940, Employer’s Annual Federal Unemployment Tax Return
13
Internal Revenue Service. Failure to File Penalty
14
Internal Revenue Service. Failure to Deposit Penalty