Glossary

FUTA tax

The federal unemployment tax, charged on the first $7,000 of each employee's wages at a rate reduced by a credit for state payments.

The Federal Unemployment Tax Act funds administration of the unemployment insurance system and the federal share of extended benefits. Employers pay a headline rate but receive a credit of up to 5.4 percentage points for paying their state unemployment tax on time, which is why most employers face an effective rate far below the headline. States that have borrowed from the federal unemployment account and not repaid it become credit-reduction states, and employers there lose part of that credit — but the determination is not made until November each year, so any figure published before then is a projection rather than a rate.

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