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Department of Labor

Unemployment Insurance

Introduction & Background

Important Highlights

Contributions

Federal Unemployment Tax Act (FUTA)

Experience Rating

Reimbursing Employers

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Localized and Non-Localized Employment

Reciprocal Coverage

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Glossary

FAQ'S

Federal Unemployment Tax Act - FUTA

 

Most employers liable for state unemployment taxes are also liable for taxes under the Federal Unemployment Tax Act (FUTA).

This FUTA tax is used to pay the costs of operating the Unemployment Compensation Programs and the Public Employment Service in the State and Federal Governments and also to repay the Federal debt for extended benefits and the Federal Supplemental Compensation Program.

The unemployment compensation system is a joint program between the Federal and State Governments.

Employers who pay State unemployment taxes in the form of contributions receive an offset credit on their Federal unemployment taxes if the State is certified by the US Secretary of Labor as satisfying the Federal law. This is how the process works:

Base Federal Unemployment Tax Rate 6.0%
Surtax for Fund Building +.2%
Total Federal Unemployment Tax Rate 6.2%

The Federal offset credit is 90.0% of the Federal Base Tax.

6.0% X 90.0% = 5.4%

The total Federal unemployment tax would be reduced by the credit as follows:

Total Federal Tax 6.2%
Offset credit -5.4%
Net Federal Tax .8%