The Federal Unemployment Tax Act (FUTA) is another feature of the federal Social Security program. Federal unemployment taxes provide benefits for a limited period of time to employees who lose their jobs through no fault of their own. The FUTA tax rate is 6.2% of taxable wages. The taxable wage base is the first $7,000 of wages paid to each employee in a calendar year. Employers who pay the state unemployment tax on a timely basis will receive an offset credit of up to 5.4%. Therefore, the net federal tax rate is generally 0.8% (6.2%-5.4%). This rate would equate to a maximum of $26 of federal tax per employee per year (.008$7,000). State tax rates are based on state law.
The employer bears the entire federal unemployment tax. There is no deduction or withholding from employees. Companies use the account Federal unemployment tax for Taxes Payable to recognize this liability.