The FUTA (Federal Unemployment Tax Act) tax is what employers pay when filing Form 940. For the 2024 tax year, the FUTA tax is the same as it was at 6 percent. However, there is more to this rate than meets the eye. Although the FUTA tax rate is 6 percent, you may pay less.
First and foremost who pays FUTA tax? If you’re an employer that had a business that was sold or transferred during the tax year, the employers must generally pay FUTA tax. If you had employees for at least some part of a day for 20 or more weeks during the year and paid $1,500 or more in wages, you are required to file Form 940, thus, pay FUTA tax.
FUTA tax credit is 6 percent but you can get a tax credit up to 5.4 percent, unless the principal place of business isn’t one of the credit reduction states.
However, you may get a credit for FUTA tax up to 5.4 percent and pay only 0.6 percent of the tax. Most employers who paid state unemployment taxes without any remaining liability on time are eligible for the FUTA tax credit.
While this is the case for most employers, you may not get this as there is an additional requirement. The state must be a credit reduction state. What this refers to is that the state hasn’t repaid money it borrowed from the federal government to pay the unemployment benefits.
For the time being, only the employers in the U.S. Virgin Islands are responsible for paying the highest FUTA tax due to failure to pay the federal UI loans by November 10, 2023.