US payroll glossaryFederal Unemployment Tax Act tax

What is FUTA? The federal unemployment tax employers pay

Definition

FUTA is the federal unemployment tax an employer pays on each employee's wages. For 2026 the rate is 6.0% on the first $7,000 paid to each employee, and most employers get a 5.4% credit for state unemployment tax, leaving 0.6%: at most $42 a year per employee. Nothing is withheld from the employee.

The employer payroll tax calculator adds FUTA, your state's unemployment tax and the employer's social security and Medicare for 2026.

Work out FUTA on your payroll

Updated October 8, 2026 · Approved by PayDocs, October 8, 2026

What FUTA means

FUTA stands for the Federal Unemployment Tax Act. The tax it creates funds the federal side of unemployment insurance, while each state runs its own program funded by its own tax (SUTA). The two fit together: IRS Publication 15 (2026) lets you credit up to 5.4% for state unemployment contributions paid in full and on time, which brings the 6.0% federal rate down to an effective 0.6%.

You owe FUTA as a business employer if you paid wages of $1,500 or more in any calendar quarter, or had an employee for some part of a day in 20 or more different weeks, in the current or previous year. Household employers use a different test: cash wages of $1,000 or more in any calendar quarter, according to the Form 940 instructions.

Some states borrow from the federal unemployment fund. When a loan stays unpaid, that state becomes a credit reduction state, your 5.4% credit shrinks, and the extra tax is added to your fourth-quarter deposit.

FUTA on three employees, worked through

A small shop pays three people in 2026: $30,000, $18,000 and $5,000. Only the first $7,000 of each person's pay counts, so the FUTA wages are $7,000 + $7,000 + $5,000 = $19,000.

FUTA for 2026 on $19,000 of taxable wages (full state credit, no credit reduction)
Step	Rate	Amount
Gross FUTA	6.0%	$1,140.00
Credit for state unemployment tax	5.4%	−$1,026.00
FUTA owed	0.6%	$114.00

Because $114 never passes $500 in a quarter, Publication 15 lets the shop carry it forward and pay it with Form 940, due January 31 after the year ends (the next business day when that is a weekend).

Why FUTA is missing from the pay stub

The Form 940 instructions are blunt: don't collect or deduct FUTA tax from your employees' wages. So a correct pay stub never shows FUTA in the deductions column, and net pay is not reduced by it. If a stub you were handed lists FUTA as a deduction, the payroll was set up wrongly.

Some employers print their own taxes in a separate box labelled employer contributions, for information. If you do, keep it apart from the employee's deductions so the take-home arithmetic still adds up.

Questions

Is FUTA taken out of an employee's paycheck?

No. FUTA is paid by the employer alone. The IRS tells employers not to collect or deduct it from wages, so it never reduces take-home pay or appears as a deduction line on a pay stub.

What is the most FUTA I can owe for one employee in 2026?

With the full 5.4% state credit, $42: 0.6% of the $7,000 wage base. Without any credit it would be $420. A credit reduction state raises the figure by the reduction rate for that year.

Which form reports FUTA?

Form 940, filed once a year. Deposits are due quarterly only when the amount owed, including anything carried forward, goes over $500. Household employers report FUTA on Schedule H with their own Form 1040 instead.

Sources

IRS: Publication 15 (2026), Employer's Tax Guide (read October 8, 2026)
IRS: Instructions for Form 940 (2025) (read October 8, 2026)
IRS: Topic no. 759, Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return (reviewed 24 September 2026) (read October 8, 2026)
IRS: Publication 926 (2026), Household Employer's Tax Guide (read October 8, 2026)

Figures are for the 2026 tax year unless the text says otherwise. This page explains a payroll term; it is general information, not tax or legal advice.