Form 940 is the yearly federal unemployment tax return. Only employers pay FUTA, on the first $7,000 of each employee’s wages, and most pay an effective 0.6% after the credit for state unemployment tax.
| Item | Rule |
|---|---|
| Rate | 6.0% |
| Wage base | First $7,000 of each employee’s wages in the year |
| Rate after the state credit | 0.6% for most employers |
| Credit reduction state | A smaller credit, so more FUTA is owed |
| Deposits | Required once the liability is more than $500 |
| Filing | January 31, or February 10 if all deposits were made when due |
| Who pays | The employer only, never withheld from pay |
See Form 941 for the quarterly return and employer payroll taxes for how FUTA fits with the other employer taxes.
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A bakery has 6 employees in 2026. Four earn more than $7,000 during the year, and two part-timers earn $5,000 and $3,000. FUTA wages are 4 x $7,000 + $5,000 + $3,000 = $36,000. At 0.6%, the FUTA tax is $216.
Because the total for the year never passes $500, the bakery does not have to make a quarterly deposit. It pays the $216 with Form 940 and files by January 31.
In 2027 the bakery grows to 20 employees, all earning more than $7,000. FUTA wages are 20 x $7,000 = $140,000, and the tax at 0.6% is $840. Most of that builds up early in the year, because each person reaches the $7,000 wage base within a few months, so the running total passes $500 in the first or second quarter and a deposit is required for that quarter. Payroll tracks the running total each quarter so the deposit is not missed.
Employers that pay wages subject to state unemployment tax in more than one state, or in a credit reduction state, also complete Schedule A with Form 940. It lists each state and works out any credit reduction.
The FUTA wage base is counted per employee for each employer and year, not per state. An employee who moves from one state to another during the year still has one $7,000 FUTA wage base with you. State unemployment wage bases follow each state’s own rules.
A trucking company transfers a dispatcher from one state to another in May. She earned $18,000 by then and $27,000 for the rest of the year.
For FUTA, she reached the $7,000 wage base in the first state, so no more FUTA is owed on her wages for the year, and the company’s FUTA for her is $42 at 0.6%. Because the company paid state unemployment wages in two states, it completes Schedule A with its Form 940. Her state unemployment wages are handled under each state’s rules.
To report and pay federal unemployment tax, FUTA, for the year.
Only employers. The IRS says not to collect or deduct FUTA from employees’ wages.
January 31 after the year ends, or February 10 if all FUTA tax was deposited when due.
6.0% on the first $7,000 of each employee’s wages. Most employers pay 0.6% after the credit for state unemployment tax.
A schedule for employers that paid wages subject to unemployment tax in more than one state, or in a credit reduction state. It works out any credit reduction.
No. The $7,000 FUTA wage base is counted per employee for each employer and year, regardless of the state.
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