Is FUTA tax deducted from employee wages?

No. Federal unemployment tax is an employer-only tax and must never be withheld from an employee's pay. The same is true of state unemployment tax in almost every state, with a small number of exceptions where an employee contribution applies.

What is the effective federal unemployment tax per employee?

For an employer entitled to the full state credit, it is the net rate applied to the first $7,000 of each employee's wages — a fixed maximum per employee per year, reached early and then not charged again. The calculator on this site shows the exact figure with the source it came from.

How do I know if my state has a credit reduction?

The Department of Labor determines the list each November. Until that determination, any figure circulating is provisional — this site ships an empty list rather than a provisional one, and says so, because publishing a potential reduction as though it were settled can overstate an employer's cost by several hundred dollars per employee.

FUTA Tax vs SUTA Tax: What Is the Difference?

Both fund the unemployment insurance system and both are paid by the employer, but one is federal and one is state — and they interact. Paying the state tax on time earns a credit that cuts the federal rate by ninety percent, which is why the headline federal figure is almost never what an employer pays.

One federal, one state, both on the employer

Federal unemployment tax funds the administration of the unemployment system and a federal loan account that states draw on in downturns. State unemployment tax funds the benefits themselves. Employers pay both, on the same wages, at the same time of year.

Both stop at a wage ceiling, and the ceilings are different. The federal ceiling is the first $7,000 of each employee's wages and has been for decades. The state ceiling is whatever that state sets, and varies enormously.

The credit is the whole story

The federal headline rate looks substantial. Almost no employer pays it, because paying state unemployment tax in full and on time earns a credit of 5.4 percentage points against it — reducing the effective federal rate to a small fraction of the headline.

On the first $7,000 of a wage, that difference is the gap between a few hundred dollars per employee and around forty. It is also why an employer who misses state deadlines pays twice: once in state penalties, and again in a reduced federal credit.

Credit reduction states

When a state borrows from the federal account to pay benefits and does not repay within two years, employers in that state lose part of the credit — so their federal rate rises until the loan is cleared.

The list is determined each year in November, and it is worth knowing that a state appearing on a preliminary list has not been determined yet. Provisional figures published in the spring are often reduced or waived entirely before the year ends, so a calculator that prints them as fact overstates the cost.

Common questions

Is FUTA tax deducted from employee wages?: No. Federal unemployment tax is an employer-only tax and must never be withheld from an employee's pay. The same is true of state unemployment tax in almost every state, with a small number of exceptions where an employee contribution applies.
What is the effective federal unemployment tax per employee?: For an employer entitled to the full state credit, it is the net rate applied to the first $7,000 of each employee's wages — a fixed maximum per employee per year, reached early and then not charged again. The calculator on this site shows the exact figure with the source it came from.
How do I know if my state has a credit reduction?: The Department of Labor determines the list each November. Until that determination, any figure circulating is provisional — this site ships an empty list rather than a provisional one, and says so, because publishing a potential reduction as though it were settled can overstate an employer's cost by several hundred dollars per employee.

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