Federal Unemployment Tax Act

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The Federal Unemployment Tax Act (or FUTA, 26 U.S.C. ch.23) is a United States federal law that imposes a federal employer tax used to fund state workforce agencies. Employers report this tax by filing an annual Form 940 with the Internal Revenue Service. In some cases, the employer is required to pay the tax in installments during the tax year.

FUTA covers the costs of administering the unemployment insurance (UI) and job service programs in all states. In addition, FUTA pays one-half of the cost of extended unemployment benefits (during periods of high unemployment) and provides for a fund from which states may borrow, if necessary, to pay benefits.

The FUTA imposes a 6.2% tax on the employer for the first $7,000 of gross earnings of each worker. Once the worker's earnings reach $7,000, then the employer no longer pays any Federal unemployment tax for that year with respect to that worker. Certain credits are allowed with respect to state unemployment taxes paid.

[Printable FUTA form 940 from IRS.gov]