Employers are subject to the FUTA tax, which is a federal tax on their income for unemployment insurance costs. This tax is used for unemployment benefits to workers who have lost their job. The FUTA tax is not subject to the state unemployment insurance taxes employers must pay. The FUTA tax rate for the first $7,000 in wages each employee receives during a calendar year is 6%. Employers pay the tax and employees cannot deduct it from their wages. There are a few things employers should know about the FUTA Tax. Continue reading to learn more about this tax.
What is the FUTA tax?
Federal Unemployment Tax Act (FUTA), is a federal payroll tax all employers have to pay. The FUTA tax, which is 6% of the first $7,000 earned by each employee, is used to pay unemployment benefits for those who lose their job.
Employers also have to pay state unemployment taxes. These vary from one state to the next. The employer is responsible for paying both the FUTA and state unemployment taxes in most states. In some states, however, the employer pays part or all of the state unemployment tax.
Employers pay the FUTA tax quarterly. Quarterly payments must be made by April 30, July 31, October 31, and January 31. Employers who fail to pay quarterly FUTA taxes on time could be subjected to penalties and interest.
Contact our office if you have questions about FUTA taxes. We can help determine your FUTA obligation and ensure that you comply with all rules and regulations.
Who pays the FUTA tax?
All employers are required to pay FUTA (Federal Unemployment Tax Act). The FUTA tax funds unemployment benefits for workers who have lost jobs.
The FUTA tax applies to the first $7,000 in wages each employee receives during a calendar year. Employers are permitted to claim a credit for state unemployment taxes they have paid against the tax. An employer can only receive a maximum credit of 5.4%. The effective FUTA tax rate (6% – 5.4%) is therefore 0.6%.
Employers are responsible to pay the FUTA taxes. They must file quarterly reports with IRS detailing the amount they have paid in taxes. Employers have the option to withhold the FUTA taxes from employees’ wages but are not required to.
What are the exemptions from the FUTA tax?
There are a few exceptions to the FUTA Tax, which is a federal tax imposed upon employers. These exemptions are:
-Employers exempted from federal unemployment tax
-Employers that pay the state unemployment tax
-Employees exempted from federal income tax
The FUTA tax funds unemployment benefits. It’s important that you know if your company is required to pay this tax. You can consult a tax advisor or accountant if you are unsure.
How to file for a FUTA tax extension
The process of requesting a FUTA extension is very simple. Fill out Form 7004 to submit to the IRS.
Once you have received your Form 7004, fill it out with all your business information, and then send it back. After reviewing your request, the IRS will decide whether to grant you an extended period. If granted, you will be allowed more time to file your FUTA tax returns.
Important to remember that the filing of a FUTA extension tax extension does NOT mean you will not owe taxes. Taxes that are due will still be payable. An extension gives you more time to organize your affairs and ensure everything is in place before the deadline.
If you are looking for a FUTA extension tax extension, please submit Form 7004 along with the instructions. It’s that easy!
Although there are many things to learn about the FUTA Tax, the most important thing is to remember that it is a payroll tax that funds unemployment benefits. Employers will need to pay FUTA taxes on all employees’ wages. Employees will have their paychecks withheld by their employer. Understanding how FUTA taxes work can help you plan your financial future, regardless of whether you are an employer or employee.