The FUTA tax levies a federal tax on employers covered by a state’s UI program. The standard FUTA tax rate is 6.0% on the first $7,000 of wages subject to FUTA. The funds from the FUTA tax create the Federal Unemployment Trust Fund, administered by the United States Department of Labor (DOL).
Generally, employers may receive a credit of 5.4% when they file their Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, to result in a net FUTA tax rate of 0.6% (6.0% – 5.4% = 0.6%).
Some states take Federal Unemployment Trust Fund loans from the federal government if they lack the funds to pay UI benefits for residents of their states. If a state has outstanding federal loans for two consecutive January’s, the 5.4% credit will be reduced by .3% the first year and an additional .3% for each year after until the loan is repaid. The cost of repaying the state’s loan is passed to employers as part of their FUTA tax liability.
If you are in one of the FUTA Credit Reduction States, and have electronic services enabled, SwiftChecks will recover any additional FUTA liability due on your account on 1/9/2014 with a one time adjustment and file form 940 and Schedule A electronically.