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What is FUTA?

FUTA is the federal unemployment tax. The employer pays it on the first $7,000 of each employee's pay.

Payroll glossary3 min

FUTA is the federal unemployment tax. It is paid only by the employer, on the first $7,000 of each employee's pay in the year.

Why does it matter?

FUTA is the federal side of unemployment tax, and it is paid on top of your state unemployment tax. Nothing is taken from the employee's pay for it.

It matters because the two taxes work together: paying your state on time earns you a credit that cuts the FUTA you owe.

Fact	What it means
Who pays	The employer only. It is not taken from employees.
What it applies to	The first $7,000 of each employee's pay in the year.
The rate	6.0%, with a credit of up to 5.4% for state unemployment tax you paid on time.
The usual net rate	0.6%, which is $42 per employee at most.
The return	Form 940, once a year, due January 31 after the year ends. You have 10 extra days if you deposited all FUTA on time.
An extra schedule	Schedule A (Form 940) if you paid wages in more than one state, or in a credit reduction state.

Enter your state unemployment rate under State registrations. A payroll cannot be approved without it, because your state payments are what earn the credit.
After the year ends, open Reports & forms and choose Form 940 / FUTA (yearly) to see the totals by quarter.
Use the totals to prepare Form 940, then record that it was filed with the date, the confirmation number and the receipt.

Paying the state late. The credit is then smaller, so you owe more FUTA.
Forgetting about a credit reduction state. This is a state that has not repaid a federal loan for its unemployment fund. The credit is lower there and you owe more. The IRS lists these states each year.
Missing the January 31 date. A return filed late carries its own penalty.

Sources (government sites)

Next: What is Form 940?