FUTA Tax Calculator
FUTA (Federal Unemployment Tax Act) tax is an employer-only tax that funds federal unemployment programs. It is 6.0% on the first $7,000 of each employee's annual wages, reduced by a 5.4% credit for state unemployment taxes paid on time, giving an effective rate of 0.6% ($42 per employee) in most states. This calculator estimates your total FUTA liability for 2025. Enter your number of employees, average wages, and state; if you are in a credit-reduction state (a state with an unrepaid federal loan) your effective rate is higher. FUTA is never deducted from employee pay. All figures are sourced from the IRS and the U.S. Department of Labor and verified for 2025.
For 10 employees each earning at least $7,000, the standard FUTA tax is $420.00 ($42.00 per employee at 0.6%).
How FUTA is calculated
taxable wages per employee = min(annual wages, $7,000)
FUTA per employee = taxable wages x effective rate / 100
total FUTA = FUTA per employee x number of employees
Standard effective rate = 6.0% gross - 5.4% state credit = 0.6%. Credit-reduction states lose 0.3% of the credit per year their federal loan is outstanding.
The credit reduction is where FUTA gets expensive
FUTA looks trivial until a credit reduction lands. In most states the math is fixed and small: 6.0% on the first $7,000 of each worker's wages, less a 5.4% credit for state unemployment tax paid on time, leaving 0.6% or $42 per employee for the year. The trap is that the 5.4% credit is conditional. Miss your state unemployment deposits and the credit shrinks, quietly pushing your federal rate toward the full 6.0%.
The bigger surprise is geography. When a state borrows from the federal government to pay benefits and does not repay, the U.S. Department of Labor strips 0.3% of the credit for each year the loan stays open. For tax year 2025, filed on Form 940 in early 2026, that leaves California employers at an effective 1.8% ($126 per employee) and U.S. Virgin Islands employers at 5.1% ($357 per employee), several times the standard bill. Because the reduction is announced in November, it is retroactive to January: budget for it before you know it is coming.
Two habits keep FUTA predictable. Track the $7,000 wage base per employee, not total payroll, so seasonal and part-time staff are not overcounted, and remember the tax is never withheld from a paycheck. The 2026 credit-reduction list is not final until late 2026, so treat any current-year projection for a borrowing state as provisional.
FUTA tax: frequently asked questions
What is FUTA and who pays it?
The Federal Unemployment Tax Act (FUTA) tax funds federal unemployment programs. It is paid by employers only, never withheld from employee wages. FUTA is 6.0% on the first $7,000 of each employee's annual wages, but employers who pay their state unemployment tax on time get a 5.4% credit, reducing the effective rate to 0.6% ($42 per employee per year) in most states.
What is the FUTA rate for 2025?
The gross FUTA rate is 6.0% on the first $7,000 of wages per employee. After the standard 5.4% state credit, the effective rate is 0.6%, a maximum of $42 per employee. Employers in credit-reduction states pay more (see below).
What are FUTA credit-reduction states?
A credit-reduction state is one that borrowed from the federal government to pay unemployment benefits and has not repaid the loan. Employers there lose 0.3% of the 5.4% credit for each year the loan is outstanding, raising their effective FUTA rate. For 2025 (Form 940 filed in 2026), the credit-reduction states are California (+1.2%, effective 1.8% = $126/employee) and U.S. Virgin Islands (+4.5%, effective 5.1% = $357/employee).
How is FUTA calculated?
FUTA is charged only on the first $7,000 of each employee's wages per year. Multiply $7,000 (or the employee's wages if lower) by your effective rate, then add across employees. Once an employee earns $7,000, no further FUTA is due on that employee for the year.
Official sources
- FUTA rate, wage base and credit-reduction states: IRS FUTA Credit Reduction and U.S. Department of Labor, tax year 2025, as at 15 July 2026.
Reviewed by the CalculatorHub team, edited by James Graham, 15 July 2026. See our methodology. General information, not tax advice.