Federal Unemployment Tax Act
Employers are required to pay a tax on the wages they pay their employees under the Federal Unemployment Tax Act (FUTA), which is a federal law. Unemployment compensation programs for workers who have lost their jobs are funded by the tax. FUTA was passed in 1939 as a component of the Government managed retirement Act and is regulated by the Interior Income Administration (IRS).
Employers are required to pay a tax of 6% on the first $7,000 that each employee receives in a calendar year under FUTA. However, a credit against their FUTA tax obligation may qualify employers who pay state unemployment taxes for a reduction in their tax rate. FUTA taxes are the sole responsibility of employers, and they are not deducted from wages.
State unemployment compensation programs are funded by the money collected from FUTA taxes. Form 940, which must be submitted annually to the IRS, must be used by employers to indicate their FUTA tax obligation. Inability to cover FUTA duties or record Structure 940 can bring about punishments and interest charges.
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