As a business owner, you must adhere to certain undertakings to stay compliant. One of these undertakings include paying your FUTA tax on time. Failure to do so can lead to heavy fines and penalties.

This guide will walk you through the basics of FUTA tax, covering:

• What is FUTA tax
• How does FUTA tax work
• Who qualifies for FUTA tax
• How is FUTA tax calculated
• When are FUTA tax payments due

So let’s start with,

What is FUTA tax?

FUTA tax is a federal tax imposed on businesses to help fund unemployment agencies at the state level. These agencies then use the tax collections to provide unemployment benefits to employees who may lose their job through no fault of their own. It’s an “employer-only” tax, meaning that it’s paid by employers and not by employees.

How does FUTA tax work?

The FUTA tax system works as follows:

• Employers deposit the payments with the IRS
• The IRS transfers the payments to the federal fund
• The fund distributes the payments among state-level unemployment agencies as required

Who qualifies for FUTA tax?

You must pay FUTA tax if:

• Your quarterly wage bill exceeds $1,500
• You have one or more employees working for you for at least some part of the day for 20 or more weeks in a year

How is FUTA tax calculated?

FUTA tax is calculated on a quarterly basis as a percentage of your total quarterly wage bill. To calculate your FUTA tax:

• Add the gross pay of your employees for the quarter period
• Subtract payments in excess of $7,000 a year
• Multiply the result by 0.6 (0.06 if you pay state unemployment taxes)

This is your due FUTA tax for the quarter period.

When are FUTA tax payment due?

FUTA tax is usually paid at the end of the month following the end of each calendar quarter. The due dates for FUTA tax payments are:

• April 30
• July 31
• October 31
• January 31

However, if your FUTA tax for a quarter period is $500 or less, you can carry the payment to the next quarter period.

We hope the information provided in this guide was helpful. If you’ve any additional questions about FUTA tax that you’d like to ask, feel free to reach out; A&B Accounting and Business Solutions will be happy to provide you business tax services.

A BONUS read: Knock, Knock: Hello Sir, This is Small Business Audit Team!