The Federal Unemployment Tax Rate for 2024

The federal unemployment tax rate is 6.0 percent of employee wages, up to a wage base limit. That wage base limit is $7,000 per employee per year, meaning you pay the tax only on the first $7,000 each worker earns. Once an employee reaches $7,000 in wages during the calendar year, you stop paying federal unemployment tax on that person's additional earnings.

The actual amount you owe depends on your state. Most employers pay the full 6.0 percent to the federal government, but if your state has an approved unemployment insurance program, you can claim a credit of up to 5.4 percent against your federal tax. That means your net federal payment is often 0.6 percent, with the remaining 5.4 percent going to your state unemployment fund instead.

The wage base limit of $7,000 is set by federal law and does not change year to year. Some states set their own wage base limits that are higher, which means you pay state unemployment tax on more of each employee's wages, but the federal portion stays at $7,000.

Key Takeaways

  • The federal unemployment tax rate is 6.0 percent on the first $7,000 of each employee's annual wages.
  • Most employers pay only 0.6 percent to the federal government because they receive a credit of up to 5.4 percent for paying state unemployment tax.
  • The $7,000 wage base limit is federal and applies to every employee, every calendar year.
  • Your actual federal payment depends on whether your state has an approved unemployment program and whether you pay state unemployment tax on time.
  • The rate and wage base do not vary by industry, company size, or employee type — they are the same for all employers.

How the Federal Credit Works and When You Lose It

The 5.4 percent credit is not automatic. You receive it only if your state has an approved unemployment insurance program and you pay your state unemployment tax in full and on time. If you fail to pay state unemployment tax, or if your state's program is not approved by the federal government, you must pay the full 6.0 percent to the federal government.

A few states do not have their own unemployment insurance programs. In those cases, employers pay the full 6.0 percent federal rate with no credit. You can find out whether your state participates by contacting your state labor department or checking the Department of Labor website.

If your state experiences a period of high unemployment and borrows money from the federal government to pay benefits, the federal government may reduce your credit for a time. This is called a credit reduction, and it raises your effective federal rate above 0.6 percent until the state repays the loan. Your state will notify you if this happens.

Calculating Your Total Federal Unemployment Tax Liability

To find your total federal unemployment tax for the year, multiply the number of employees you had during the year by $7,000, then multiply that result by your effective rate. If you have the full 5.4 percent credit, your effective rate is 0.6 percent. If you have no credit, it is 6.0 percent.

Here is a concrete example: if you have five employees and pay them throughout the year, your taxable wage base is 5 × $7,000 = $35,000. At the 0.6 percent rate (with full credit), your federal unemployment tax is $35,000 × 0.006 = $210 for the year. At the 6.0 percent rate (with no credit), it would be $35,000 × 0.06 = $2,100.

You do not pay federal unemployment tax on wages above $7,000 per employee, even if an employee earns $50,000 or $100,000 during the year. Once you have paid tax on the first $7,000, that employee's remaining wages are not subject to federal unemployment tax.

Who Pays Federal Unemployment Tax and Who Does Not

Most employers must pay federal unemployment tax if they have employees. However, some employers are exempt. Agricultural employers, household employers, and certain nonprofit organizations may not owe federal unemployment tax, depending on the number of employees and the amount of wages paid.

Sole proprietors and partners do not pay federal unemployment tax on their own income. You pay it only on wages you pay to employees. If you are self-employed and have no employees, you do not owe federal unemployment tax.

State and local government employers, the federal government itself, and certain religious organizations are also exempt from federal unemployment tax. If you are unsure whether your business is exempt, contact the IRS or your state labor department.

When Federal Unemployment Tax Is Due

Federal unemployment tax is reported and paid annually, not quarterly like income tax withholding. You report it on Form 940, which is due on January 31 of the year following the tax year. For example, tax you owe for 2024 is reported on Form 940 and due January 31, 2025.

If you owe more than $500 in federal unemployment tax for a quarter, you must make a deposit for that quarter before the due date for that quarter. The deposit due dates are April 30, July 31, October 31, and January 31. Most small employers do not owe enough in any single quarter to trigger a deposit requirement, so they pay the full amount when they file Form 940.

You must also file state unemployment tax returns according to your state's schedule, which is usually quarterly. State due dates vary, so check with your state labor department for the exact dates that apply to you.

The Difference Between Federal and State Unemployment Tax

Federal unemployment tax funds the federal unemployment insurance program and administrative costs. State unemployment tax funds your state's unemployment benefits program, which pays benefits to workers who lose their jobs. The two are separate taxes with separate rates and wage bases.

Federal rate: 6.0 percent (or 0.6 percent with credit) on the first $7,000 of wages per employee per year. State rates vary widely by state, ranging from roughly 0.5 percent to 5.4 percent or higher, depending on your industry and your company's history of layoffs. State wage bases also vary — some states tax wages up to $7,000 per employee, while others tax up to $15,000 or more.

You pay both taxes. The federal tax funds a national program; the state tax funds your state's program. Paying state unemployment tax on time and in full is what allows you to claim the federal credit and reduce your federal rate from 6.0 percent to 0.6 percent.

Frequently Asked Questions

Does the federal unemployment tax rate change every year?

The federal rate itself — 6.0 percent — does not change. The wage base limit of $7,000 also remains the same year to year. However, your effective rate may change if your state borrows from the federal government to pay benefits, which triggers a credit reduction. Check with your state labor department if you think this applies to you.

What happens if I have employees in multiple states?

You pay federal unemployment tax at the same 6.0 percent rate (or 0.6 percent with credit) on all employees, regardless of which state they work in. You also pay state unemployment tax to each state where you have employees, at that state's rate and wage base. Your federal tax is one total; your state taxes are separate by state.

Can I deduct federal unemployment tax from my business income?

Yes. Federal unemployment tax is a business expense and is deductible on your federal income tax return. You report it on Schedule C (for self-employed) or on your business tax return. State unemployment tax is also deductible.

What if I pay an employee more than $7,000 in one month?

You still pay federal unemployment tax only on the first $7,000 of that employee's wages for the entire calendar year, not per month. Once you have paid tax on $7,000 in total wages for that employee during the year, no additional federal unemployment tax is due on that person's wages for the rest of the year, even if they earn much more.

Do I owe federal unemployment tax on contractor payments?

No. Federal unemployment tax applies only to employees, not to independent contractors. If you pay a contractor $5,000 or $10,000, you do not owe federal unemployment tax on that payment. You report contractor payments on Form 1099-NEC instead. However, you must correctly classify workers as contractors or employees — misclassifying an employee as a contractor can result in penalties.