What is futa?

FUTA (Federal Unemployment Tax Act) is an employer-paid federal tax that funds unemployment compensation programs; it currently is 6.0% on the first $7,000 of each employee's wages, with a credit for state unemployment tax paid. For professional service firms, FUTA is typically a small but required payroll obligation.

Key characteristics

• Federal unemployment tax

• Employer paid only

• 6.0% on the first $7,000 wages

• Credit for SUTA paid

• The effective rate is usually 0.6%

• Annual or quarterly deposit

Why it matters for professional service firms

FUTA is a small but mandatory employer tax. With SUTA credit, the effective rate is typically 0.6% on the first $7,000 per employee ($42 per employee annually). Professional service firms must track and deposit FUTA, typically annually if liability is under $500.

Real-world example

David had 8 employees, all of whom exceeded $7,000 in wages. FUTA calculation: 8 employees times $7,000 times 6.0% equals $3,360 gross, minus SUTA credit of 5.4% ($3,024) equals net FUTA of $336 ($42 per employee). Deposited annually under the $500 threshold. Small amount, but required compliance obligation.