Futa tax is a federal payroll tax that employers must pay on behalf of their employees. It is important for employers to understand how to calculate Futa tax in order to ensure they are paying the correct amount and remain compliant with federal regulations. This guide will provide an overview of Futa tax, explain how to calculate it, and discuss the implications of not paying the correct amount.
How to Calculate the Federal Unemployment Tax (FUTA) Rate
The Federal Unemployment Tax (FUTA) rate is calculated by multiplying the taxable wage base of $7,000 by the FUTA tax rate of 6.0%. The resulting figure is the amount of FUTA tax due for each employee in a given year. To calculate the total FUTA tax due for all employees, multiply the number of employees by the FUTA tax rate and then multiply that figure by the taxable wage base. For example, if an employer has 10 employees, the total FUTA tax due would be 10 x 6.0% x $7,000 = $420.00.
It is important to note that employers may be eligible for a reduced FUTA tax rate if they have made timely payments of state unemployment taxes. Employers should contact their state unemployment agency for more information on how to qualify for this reduced rate.