Just when you thought you were done paying FUTA tax on your employees for the year, your accountant tells you that you need to pay a few more dollars for all of your employees.
Why did this happen? Here are some FUTA fast facts:
- Employers pay FUTA at a rate of 6% on the first $7,000 each of your employees’ earn
- The federal government gives you a 5.4% credit on this tax for SUTA that is paid on time for a net tax amount of 0.6%
- A large majority of payroll processing software packages, services, and accountants assume that you will get this credit and that you will at most owe $42 per employee
If your state had to borrow money from the federal government in order to pay unemployment benefits and was not able to repay the loan by the due date, the federal government reduces the amount of credit that you can claim.
When the IRS finalizes Form 940 at the end of the year, they make a note of the states that have an outstanding unemployment loan balance. For each year that a state has not met its obligation, they reduce the credit that can be taken by employers in that state by 0.3%.
Your liability will go up at the end of the year if your state did not pay off its obligation before it was due. If the state paid off its obligation, then you will once again get the full 5.4% credit.
How Can AMS Software Help?
Advanced Micro Solutions’ 1099-etc software offers a complete solution for:
- Small businesses’ payroll
- Tax professionals
- Payroll processing companies
Keep better track of both your SUTA and FUTA liabilities to make sure that you are compliant. We provide free 1099-etc demo software so that you can make sure that our program fits your needs. Support is provided free of charge on Monday through Friday from 8am to 6pm central time via email, fax, phone, and chat. We offer extended hours in January and April, including Saturdays.
People Also Ask
- When are 940s due? – File the Employer’s Annual Federal Unemployment (FUTA) Tax Return by Jan. 31. Your business may be eligible for a Feb. 10 deadline if you already deposited all of your FUTA tax when it was due.
- How do I report fringe benefits on a W-2 form? – Enter the value of fringe benefits in Boxes 1, 3, and 5 on W-2 forms. Employers must report most fringe benefits, but not every fringe benefit for employees is taxable.
This article was updated on April 25, 2026 to keep its information as fresh as possible. We update this article every six months, before and after tax season, to keep current with any changes.