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How to Determine if You Must Pay Federal Unemployment (FUTA) Tax

How to determine if you must pay Federal Unemployment (FUTA) Tax.png

How to determine if you must pay Federal Unemployment (FUTA) Tax.png

The Federal Unemployment Tax Act, with state unemployment systems, provides for payments of unemployment compensation to workers who have lost their jobs. Most employers pay both a federal and a state unemployment tax.

Federal unemployment tax is only paid by the employer - it's not withheld from the employees' wages, unlike state, federal, OASDI and other taxes.

There's a cool resource from the United States Department of Labor that lists all of the state unemployment agencies. Click here to check it out.

Do you have to pay Federal Unemployment Tax?

Here's a 3-part test...

1. THE GENERAL TEST

You’re subject to FUTA tax in 2017 on the wages you pay employees who aren't farmworkers or household workers if:

  • You paid wages of $1,500 or more in any calendar quarter in 2016 or 2017, or
  • You had one or more employees for at least some part of a day in any 20 or more different weeks in 2016 or 20 or more different weeks in 2017.

2. THE HOUSEHOLD EMPLOYEES TEST

You’re subject to FUTA tax if you paid total cash wages of $1,000 or more to household employees in any calendar quarter in 2016 or 2017. A household employee is an employee who performs household work in a private home, local college club, or local fraternity or sorority chapter.

3. THE FARMWORKERS TEST

You’re subject to FUTA tax on the wages you pay to farmworkers if:

  • You paid cash wages of $20,000 or more to farmworkers during any calendar quarter in 2016 or 2017, or
  • You employed 10 or more farmworkers during at least some part of a day (whether or not at the same time) during any 20 or more different weeks in 2016 or 20 or more different weeks in 2017.

Click here for a very comprehensive resource on FUTA and how it works.

Source: IRS Tax Map

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Check out our comprehensive employer's guide to payroll taxes - a structured and simple overview of what employers need to know about the taxes that flow through payroll - on both the employer and employee side.

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