How to Calculate SUTA and FUTA Taxes

The Federal Unemployment Tax Act (FUTA) and State Unemployment Tax Act (SUTA) establish payroll taxes that are the responsibility of employers. These taxes are not deducted from employee paychecks but are paid directly by the business. They work together to fund unemployment benefits for individuals who have lost their jobs. While they serve a similar purpose, FUTA is a federal tax with uniform rules across the country, whereas SUTA taxes are governed by individual state laws, resulting in different requirements and calculations for each state.

Information Needed for FUTA and SUTA Calculations

To calculate unemployment tax liabilities, an employer must first gather the gross wages paid to each employee for the period in question. This includes salaries, bonuses, commissions, and other forms of compensation.

The FUTA tax rate is 6.0%, applied only to the first $7,000 of each employee’s annual wages, known as the federal wage base. Once an employee’s earnings exceed this amount, no additional FUTA tax is calculated on their wages for the rest of the year.

For SUTA, the tax rate and wage base are determined at the state level. Each employer is assigned a specific SUTA tax rate by its state’s unemployment agency, often called an “experience rating,” based on the employer’s history of unemployment claims. Employers must obtain this unique rate and the state’s wage base, which can change annually, from their state agency.

Employers who pay their SUTA taxes in full and on time are eligible for a FUTA tax credit of up to 5.4%. This credit effectively reduces the FUTA tax rate from 6.0% to as low as 0.6% for most employers and incentivizes timely payment of state unemployment taxes.

States with outstanding federal loans for unemployment benefits are known as “credit reduction states.” Employers in these jurisdictions face a lower FUTA credit, which increases their effective FUTA tax rate. The reduction begins at 0.3% and increases for each consecutive year the loan is not repaid. For the 2025 tax year, California, Connecticut, New York, and the U.S. Virgin Islands have been identified as potentially subject to a credit reduction.

Calculating Your FUTA Tax Liability

Identify the taxable FUTA wages for each employee by reviewing payroll records for the portion of gross wages that falls within the $7,000 federal wage base. For an employee earning $50,000 annually, only the first $7,000 is subject to FUTA tax.

Once the taxable FUTA wages for all employees are summed, calculate the gross FUTA tax by multiplying the total by the 6.0% FUTA tax rate. For example, if a business has three employees who have each earned at least $7,000, the total taxable FUTA wages would be $21,000. The gross FUTA tax would be $1,260 ($21,000 x 0.06).

Next, calculate the FUTA credit, assuming you are eligible by paying your SUTA taxes on time. The maximum credit is found by multiplying the same total taxable FUTA wages by the 5.4% credit rate. Using the previous example, the potential credit would be $1,134 ($21,000 x 0.054).

To find the net FUTA tax due, you subtract the calculated credit from the gross FUTA tax. In the ongoing example, this would be $126 ($1,260 – $1,134), which is equivalent to applying a 0.6% net rate to the taxable wages. If the business operates in a credit reduction state, the credit would be lower. For instance, a 0.3% credit reduction would decrease the credit rate to 5.1%, resulting in a higher net FUTA tax.

Calculating Your SUTA Tax Liability

The first step is to identify the taxable SUTA wages for each employee. This requires knowing your specific state’s annual wage base limit, which you must obtain from the state’s unemployment or labor agency.

After determining the total taxable SUTA wages for all employees, multiply this amount by the unique SUTA tax rate assigned to your business. This rate is provided annually by the state, and it is important to use the correct rate for the correct year as these rates are subject to change.

For instance, if a state has a wage base of $10,000 and has assigned an employer a SUTA tax rate of 2.5%, the calculation is straightforward. For an employee earning $40,000, the tax would be calculated on the first $10,000 of wages. The SUTA tax for that single employee for the year would be $250 ($10,000 x 0.025).

Reporting and Depositing FUTA Taxes

The deposit schedule for FUTA tax is determined on a quarterly basis. If an employer’s total FUTA tax liability exceeds $500 for a given quarter, a deposit must be made by the last day of the month following the end of that quarter. For example, the deposit for the first quarter (ending March 31) would be due by April 30.

If the FUTA tax liability for a quarter is $500 or less, no deposit is required for that quarter. Instead, the amount is carried over and added to the liability for the next quarter. This process continues until the cumulative liability exceeds $500, at which point a deposit is required for the total amount.

All federal tax deposits, including FUTA, must be made through the Electronic Federal Tax Payment System (EFTPS). EFTPS is a free service from the U.S. Department of the Treasury that allows businesses to make tax payments online or by phone.

Annually, employers must report their total FUTA tax liability to the IRS using Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return. The deadline for filing Form 940 is January 31 of the following year. However, if all FUTA tax deposits were made on time and in full throughout the year, the filing deadline is extended to February 10.