Is the FUTA rate 6% or 0.6%?

Both figures are real, but you almost certainly pay 0.6%. The statutory rate is 6.0% of the first $7,000 in wages, but employers who pay state unemployment tax on time earn a 5.4% credit, dropping the effective rate to 0.6% — a maximum of $42 per employee. You only pay the full 6.0% ($420 per employee) if you lose the credit entirely.

How much FUTA do I owe for one employee?

In a standard state, no more than $42 per employee per year — 0.6% of the $7,000 wage base. A worker who earns less than $7,000 owes 0.6% of their actual pay, so a $5,000 part-timer generates $30. Anyone earning $7,000 or more hits the $42 cap, no matter how high their salary goes.

Do employees pay any part of FUTA?

No. FUTA is entirely an employer tax, and it's illegal to withhold it from an employee's paycheck. This is different from Social Security and Medicare, where the 7.65% is split between worker and employer. Every dollar of your $42-per-head FUTA comes out of your own pocket.

When do I have to deposit FUTA instead of paying annually?

Once your cumulative FUTA liability passes $500 in a quarter, you must deposit it by the last day of the following month. Below $500, you carry the balance forward and can pay it with your annual Form 940. At $42 per employee, roughly 12 or more full-year employees will push you past the threshold.

Why is my FUTA higher than 0.6% this year?

You're likely in a credit-reduction state. When a state fails to repay federal unemployment loans, the Department of Labor cuts part of the 5.4% credit, raising your effective rate by 0.3% or more. In 2024, that pushed California and New York employers to 1.5% — $105 per employee instead of $42. Check the current IRS Form 940 instructions for the official list.

Do I owe FUTA on wages I pay my spouse or child?

Usually not. Wages paid to your spouse and to your child under age 21 in a parent-owned business are generally exempt from FUTA, which can drop that portion of the tax to zero. A sole proprietor employing a 19-year-old child at $7,000 saves the full $42 in FUTA on that wage. The exemption doesn't apply if the business is a corporation or partnership with non-parent partners.

Does FUTA apply to independent contractors?

No. FUTA only applies to employees, so payments to legitimate 1099 contractors carry zero FUTA. Just be sure the worker is correctly classified — misclassifying an employee as a contractor to skip the $42 can trigger back taxes plus penalties far larger than the FUTA you avoided.

FUTA Tax Calculator: Federal Unemployment Tax

FUTA Tax Calculator: Federal Unemployment Tax•By Marko Šinko•Employer Payroll Taxes

This FUTA tax calculator turns the Federal Unemployment Tax Act into a single number: what you, the employer, actually owe for the year. Here's the part that trips people up — the law says the rate is 6.0%, but almost no business pays that. After the standard state credit, most employers pay just 0.6% on the first $7,000 of each worker's wages, which caps out at $42 per employee per year. This page walks through why that gap exists, where the 6.0% figure still bites, and how credit-reduction states quietly raise your bill.

FUTA tax calculator showing the $7,000 wage base and 0.6% net federal unemployment tax rate

The 6% Myth: Why Almost No One Pays the Headline Rate

Open Form 940 and you'll see the FUTA rate stated as 6.0%. Read a payroll forum and someone will swear they owe hundreds per employee. Both are technically starting from the same number, and both are usually wrong about the bottom line. The statutory rate is 6.0%, but Congress built in a credit of up to 5.4% for employers who pay their state unemployment insurance (SUI) tax on time. Do that, and your effective federal rate drops to 0.6%.

The math is short. FUTA applies to the first $7,000 of wages you pay each employee in a year — nothing above that. So one employee earning $30,000 and another earning $300,000 both generate the exact same FUTA base: $7,000. At the net 0.6% rate, that's $42 of federal unemployment tax for each of them. Miss your state deadlines and lose the credit, and the same worker would cost you $420 (6.0% of $7,000) — a tenfold jump that has nothing to do with how much you paid them.

What the Numbers Actually Show on a Real Payroll

Let's run an eight-person shop where everyone earns well above the wage base — say an average of $45,000. Because FUTA caps at $7,000 per head, the wage everyone earns above that simply doesn't matter. The taxable base is 8 × $7,000 = $56,000, and the tax is 0.6% of that: $336 for the whole year. That's it. Split across four quarters, you wouldn't even hit the deposit threshold, so you'd pay it all at once with your annual return.

The table below shows how the per-employee cap flattens the tax. Notice the FUTA column barely moves even as pay climbs — the whole point of the wage base.

Employee wage	FUTA taxable base	FUTA at 0.6% (standard)	FUTA at 6.0% (no credit)
$5,000 (part-time)	$5,000	$30.00	$300.00
$7,000	$7,000	$42.00	$420.00
$45,000	$7,000	$42.00	$420.00
$300,000	$7,000	$42.00	$420.00

This is why the FUTA line rarely surprises anyone who understands it, and always surprises people who expect a percentage of total payroll. If your headcount is climbing, the calculator above scales the base for you and flags whether you've crossed the $500 deposit line. For a full paycheck-level breakdown that also includes Social Security and Medicare, pair this with the employer payroll tax calculator.

Four Myths That Quietly Cost Employers Money

Most FUTA mistakes aren't math errors — they're assumptions. Each of these shows up in real payroll questions, and each carries a specific dollar consequence when you get it wrong.

Myth 1: “My employees pay part of it.”

They don't. FUTA is 100% an employer tax — you can't withhold a cent of it from a paycheck, unlike the Social Security and Medicare split. Deducting even $42 of FUTA from a worker's pay is an illegal deduction. If you're modeling what a hire truly costs, FUTA is one of several employer-only add-ons, alongside the employer half of FICA that the small business payroll calculator lays out.

Myth 2: “All of an employee's wages are taxed.”

Only the first $7,000 per employee per year counts. On a $60,000 salary, that means $53,000 of pay is FUTA-free. Employers who compute 0.6% of total payroll instead of the capped base can overstate the tax by ten times or more — budgeting $360 per worker when the real figure is $42.

Myth 3: “FUTA is always paid once a year.”

Not if you owe enough. When your cumulative FUTA liability crosses $500 in a quarter, the IRS requires a deposit by the last day of the following month. A 15-person crew at the full $42 each owes $630 — past the threshold, so quarterly deposits are mandatory. Miss them and you invite failure-to-deposit penalties that start at 2% and climb to 15%.

Myth 4: “Part-timers and seasonal help don't count.”

They usually do. FUTA generally applies once you pay $1,500 in wages in any calendar quarter, or have at least one employee for part of a day in 20 different weeks. A summer hire who earns $5,000 still adds $30 of FUTA. The rules differ for household and farm workers — more on that below.

Credit-Reduction States: The One Thing That Raises Your Rate

Here's the wrinkle that generic calculators miss. When a state borrows from the federal government to pay unemployment benefits and doesn't repay the loan in time, the U.S. Department of Labor claws back part of that 5.4% credit. Employers in those “credit reduction” states pay a higher effective FUTA rate — and they find out after the year ends, when the final list is published in November for that tax year.

The reduction starts at 0.3% and grows by 0.3% for each additional year the loan stays unpaid. For the 2024 tax year, California and New York carried a 0.9% reduction and the U.S. Virgin Islands carried much more. Here's what a 0.9% reduction does to that same eight-employee shop:

Scenario	Effective rate	Per employee	8 employees
Standard state	0.60%	$42.00	$336.00
0.3% reduction (year 1)	0.90%	$63.00	$504.00
0.9% reduction (e.g. CA/NY 2024)	1.50%	$105.00	$840.00

A 0.9% add-on more than doubles the bill — from $336 to $840 for eight people — and pushes you over the deposit threshold too. Set the credit-reduction dropdown in the calculator to see your own surcharge. Because the official list changes yearly, always confirm your status against the IRS Form 940 instructions before you file. If you also owe estimated federal tax on business profit, the quarterly business tax calculator helps you line up those deposits at the same time.

When You Owe Nothing — and the Traps That Still Apply

FUTA doesn't reach everyone. If you run a single-member LLC or sole proprietorship with no employees, you owe zero FUTA on your own earnings — your self-employment tax covers Social Security and Medicare instead, which the self-employment tax calculator handles. Payments to true independent contractors are also FUTA-free, since 1099 workers aren't employees. And an S-corporation owner's distributions aren't wages, so only the reasonable salary portion generates FUTA.

But a few edge cases catch people. Household employers (a nanny paid $1,000+ in a quarter) owe FUTA through Schedule H, not Form 940. Farm employers face a different test — $20,000 in quarterly farm wages or 10 workers in 20 weeks. And wages you pay to your own child under 21, or to your spouse, are generally exempt from FUTA entirely, which can legitimately zero out the tax for a family business. Certain fringe benefits and pre-tax deductions also shrink the base — see how those interact with the payroll calculator and the federal withholding reference.