Unemployment tax

The Federal unemployment tax (FUTA) is a tax on the first $7,000 (this amount may be adjusted, depending on the year) in qualifying wages that an employer pays an employee. The employer pays this tax in full and does not withhold it from the employee's wages.

If an employer's state requires a state unemployment tax, a credit is available to the employer for the FUTA liability. The FUTA is reported annually on a Form 940; however, it may be deposited quarterly or annually, depending on the current limit regulations and the employer's payroll.