How to Pay FUTA Tax: Requirements, Deadlines, and Filing Steps

Employers in the United States must pay the Federal Unemployment Tax Act (FUTA) tax to fund unemployment benefits for workers who lose their jobs. Unlike some payroll taxes, FUTA is solely the employer’s responsibility and isn’t deducted from employee wages.

To comply with federal tax law, businesses must calculate their liability, file the correct forms, meet deadlines, and choose an appropriate payment method.

Payment Requirements

Employers are subject to FUTA tax if they paid at least $1,500 in wages during any calendar quarter in the current or previous year. They also meet the requirement if they had at least one employee working part of a day in 20 or more different weeks within the year. This includes full-time, part-time, and temporary workers.

Certain types of employment are exempt, such as work performed by independent contractors, family members in a sole proprietorship, and some agricultural or household employees. Misclassifying workers as independent contractors can lead to penalties and back taxes. The IRS evaluates classification based on behavioral control, financial control, and the nature of the relationship.

Nonprofit organizations under Section 501(c)(3) of the Internal Revenue Code and government entities are generally exempt from FUTA tax. However, private businesses—including corporations, partnerships, and sole proprietorships—must comply if they meet the wage or employment thresholds.

Calculating Liability for the Tax

The FUTA tax rate for 2024 is 6.0% on the first $7,000 of wages paid to each employee, with a maximum liability of $420 per employee annually. Employers who pay state unemployment taxes on time may qualify for a tax credit of up to 5.4%, reducing the effective FUTA rate to 0.6% and lowering the per-employee tax to $42.

If a state has outstanding federal unemployment loans, it is designated as a “credit reduction state,” which reduces the FUTA credit and increases the tax rate. For example, a 0.3% credit reduction raises the FUTA rate to 0.9%, increasing the maximum tax per employee to $63. The IRS publishes a list of credit reduction states annually, so businesses operating in multiple states must verify their liability.

Only the first $7,000 of each employee’s wages is subject to FUTA tax. Compensation beyond this limit is excluded, as are certain payments such as employer contributions to retirement plans, some fringe benefits, and specific group life insurance premiums. Employers must track these exclusions to avoid overpaying.

Filing the Relevant Tax Form

Employers report FUTA tax on IRS Form 940, the Employer’s Annual Federal Unemployment (FUTA) Tax Return. This form consolidates total wages paid, taxable wages, and applicable state unemployment tax credits. Payroll records must align with reported amounts to prevent discrepancies that could trigger IRS audits or penalties.

Businesses operating in multiple states must complete Schedule A of Form 940 if wages are paid in a credit reduction state. Misreporting these adjustments can result in underpayments and accrued interest.

Electronic filing through the IRS’s e-file system is encouraged for faster processing and fewer errors. Businesses filing a paper return must send Form 940 to the appropriate IRS processing center based on their location. Employers should verify their Employer Identification Number (EIN) and ensure all calculations match payroll records to avoid processing delays.

Payment Schedules and Deadlines

FUTA tax payments follow a quarterly deposit schedule. If an employer’s total FUTA tax liability exceeds $500 at the end of a quarter, a deposit is required by the last day of the following month. If the liability remains under $500, the employer can carry the balance forward. Once the cumulative liability surpasses $500, a deposit must be made.

Employers owing less than $500 for the entire year can wait until the annual filing deadline and submit the full amount with Form 940, which is due by January 31 of the following year. If deposits are made on time, the IRS extends the filing deadline to February 10.

Accepted Methods of Payment

Most businesses must make FUTA tax payments electronically using the Electronic Federal Tax Payment System (EFTPS). This system allows employers to schedule payments, track transactions, and receive confirmations. Enrollment takes several business days, so early registration is recommended. Employers can also authorize payroll providers or tax professionals to make payments on their behalf.

Businesses with less than $2,500 in total FUTA tax liability for the year may qualify to pay by check or money order using Form 940-V. These payments must be mailed to the IRS processing center designated for the employer’s location. Mailing payments carries a risk of delays, so businesses should retain proof of submission to avoid penalties.

How to Report Adjustments or Credits

If an employer overpays FUTA tax or qualifies for an adjustment due to state unemployment tax changes, corrections must be reported to avoid discrepancies. Adjustments typically occur when an employer underclaims the state unemployment tax credit or miscalculates taxable wages.

To correct an overpayment, employers can apply the excess amount to future FUTA tax liabilities or request a refund by filing Form 940 with adjusted figures. If the overpayment is discovered after filing, an amended Form 940 must be submitted with a detailed explanation.

For businesses in multiple states, adjustments may be necessary if a state is later designated as a credit reduction state. Employers must recalculate their FUTA liability and remit any additional tax owed. Failing to report these changes can result in IRS notices and penalties, so monitoring state unemployment tax developments is essential.

Keeping Records for Accountability

Employers must maintain payroll records, tax filings, and proof of payments for at least four years. These records should include employee wage details, tax calculations, and any adjustments made to prior filings.

Employers using third-party payroll providers should ensure they receive regular reports summarizing FUTA tax payments and liabilities. In the event of an audit, having detailed documentation helps resolve discrepancies and prevents additional tax assessments.