Where and when you pay federal unemployment tax

Federal unemployment tax (FUTA) is paid to the Internal Revenue Service, not to your state. You deposit it quarterly using the Electronic Federal Tax Payment System (EFTPS) or through your tax professional's software. The deposit is due on the last day of the month following the end of each quarter: April 30 for Q1, July 31 for Q2, October 31 for Q3, and January 31 for Q4.

You only owe FUTA if you paid $1,500 or more in wages during any calendar quarter in the current or previous year. Once you cross that threshold, you must pay for all quarters in that year, even if later quarters fall below $1,500. The tax rate is 6% of the first $7,000 in wages per employee per year, though most employers receive a credit that reduces it to 0.6%.

If you miss a deposit deadline, the IRS charges a penalty and interest. The penalty ranges from 2% to 15% depending on how late the payment is. Setting up automatic deposits through EFTPS removes the risk of forgetting.

Key Takeaways

  • FUTA deposits go to the IRS quarterly by the last day of the month after each quarter ends, using EFTPS or tax software.
  • You owe federal unemployment tax only if you paid $1,500 or more in wages during any quarter, but then you owe for the entire year.
  • The standard rate is 6% of the first $7,000 per employee annually, but most employers receive a credit reducing it to 0.6%.
  • Late payments trigger penalties of 2% to 15% plus interest, so automatic deposits through EFTPS are the safest approach.
  • Your state unemployment tax and federal unemployment tax are separate; paying one does not cover the other.

Setting up EFTPS for your first deposit

To use EFTPS, you need an Employer Identification Number (EIN) from the IRS. If you do not have one, you can apply online at irs.gov or by phone at 1-800-829-4933. Once you have your EIN, go to eftps.gov and enroll. The IRS mails you a PIN within two weeks, which you use to log in and schedule payments.

You can enroll in EFTPS up to one business day before your payment is due. If you are cutting it close, many tax software platforms (QuickBooks, Gusto, ADP) let you pay directly through their systems, which then transmits to the IRS on your behalf. This is often faster than setting up EFTPS from scratch.

When you make your deposit, you will need your EIN, the amount owed, and the tax period it covers. The system asks you to specify that the payment is for Form 941 (quarterly payroll taxes) or Form 940 (annual FUTA). For FUTA specifically, you are paying toward Form 940.

Calculating what you owe each quarter

FUTA is calculated on gross wages before any deductions. If an employee earned $8,000 in a quarter, you calculate tax on the full $8,000, not on what they took home after taxes or benefits were withheld. The 6% rate applies only to the first $7,000 of each employee's annual wages, so once an employee has earned $7,000 in the calendar year, you stop calculating FUTA on their additional wages for that year.

You do not pay FUTA on certain types of compensation. Payments for unused vacation or sick leave, bonuses, and reimbursements for business expenses are generally not subject to FUTA if they are not wages. However, if you are unsure whether a payment counts as wages, the safest approach is to include it in your FUTA calculation.

Most payroll software calculates FUTA automatically once you enter gross wages and employee information. If you are calculating by hand, multiply total quarterly wages (up to $7,000 per employee) by 0.06, then subtract any state unemployment tax credit you are may have access to to. The credit typically brings your effective rate down to 0.6%.

Understanding the state tax credit and how it affects your federal payment

The federal government allows you to credit state unemployment taxes you have already paid against your federal FUTA liability. This credit can be up to 5.4%, which is why most employers end up paying only 0.6% federal rate instead of the full 6%. However, the credit only applies if you paid your state unemployment tax on time and in full.

If you are late paying state unemployment tax, you lose part or all of the credit. Some states also impose a surtax or surcharge during periods of high unemployment, which does not reduce your federal credit. You need to track both your state and federal obligations separately to make sure you are not overpaying or underpaying either one.

When you file Form 940 at the end of the year, you report the state credit you are claiming. The IRS verifies this against state records, so if there is a discrepancy, they will contact you. Keeping records of your state unemployment tax payments and receipts makes this reconciliation straightforward.

What happens if you do not pay on time

The IRS charges a failure-to-pay penalty if your FUTA deposit is late. The penalty is 0.5% of the unpaid tax per month, up to 25% total. If the payment is more than 10 days late, the penalty jumps to 1% per month. Interest also accrues daily at the current federal rate, which changes quarterly.

If you miss a deadline by a few days, contact the IRS as soon as you realize the error and pay immediately. The IRS sometimes waives penalties for first-time, good-faith mistakes if you pay within a short window. Repeated late payments will not receive this consideration.

If your business is struggling and you cannot pay the full amount, you can request a payment plan from the IRS. Call 1-800-829-1040 to discuss options. A payment plan does not eliminate penalties and interest, but it prevents your account from going into collection status.

Reconciling FUTA at year-end with Form 940

At the end of each calendar year, you file Form 940 (Employer's Annual Federal Unemployment Tax Return) with the IRS. This form reconciles all the quarterly deposits you made against your actual FUTA liability for the year. If you overpaid, you receive a refund; if you underpaid, you owe the difference by the filing deadline.

Form 940 is due by January 31 of the following year. If you use a payroll service or tax professional, they typically prepare and file this form for you. If you file it yourself, you can do so electronically through irs.gov or by mail. Electronic filing is faster and reduces errors.

On Form 940, you report total wages paid, the number of employees, state unemployment tax paid, and any adjustments. The form also asks whether you are claiming the full 5.4% state credit or a reduced credit due to state surtaxes or late payments. Accuracy here is important because the IRS cross-checks your Form 940 against your state unemployment records.

Keeping records and staying organized

Keep copies of every EFTPS confirmation receipt or payment receipt from your tax software. These show the date, amount, and tax period for each deposit. Store them with your payroll records for at least three years, which is how long the IRS can audit your FUTA account.

Maintain a simple spreadsheet or log showing quarterly wages by employee, the FUTA amount calculated, the date you deposited it, and the confirmation number. This makes it easy to spot errors and to prepare Form 940 at year-end. If the IRS ever questions your FUTA payments, this documentation proves you paid on time and in the correct amount.

If you change payroll providers or tax professionals during the year, make sure the new provider has records of deposits already made. A gap in communication here can lead to duplicate payments or missed deposits.

Frequently Asked Questions

Do I have to pay FUTA if I only have one employee?

Yes, if that employee earned $1,500 or more in any quarter. FUTA applies to all employers with payroll, regardless of company size. The threshold is $1,500 in a single quarter, not annually, so even a seasonal business with one worker may owe FUTA.

Can I pay FUTA monthly instead of quarterly?

No. FUTA deposits are always quarterly, due by the last day of the month following each quarter. However, if your quarterly FUTA liability is less than $500, you can carry it forward and deposit it with the next quarter's payment. Once the combined amount reaches $500, you must deposit it.

What is the difference between FUTA and SUTA?

FUTA (Federal Unemployment Tax Act) is paid to the IRS and funds the federal unemployment insurance system. SUTA (State Unemployment Tax Act) is paid to your state and funds your state's unemployment benefits. Both are employer taxes, and both are required. Paying one does not cover the other.

If an employee quits, do I still owe FUTA on their wages?

Yes. FUTA is owed on all wages paid to employees during the year, regardless of whether they are still employed at year-end. The tax is based on wages earned, not on employment status at the time you file Form 940.

Can I deduct FUTA as a business expense?

Yes. FUTA is a deductible business expense on your tax return. You report it on Schedule C (for sole proprietors) or on your business tax return. This reduces your taxable income, though it does not reduce the amount of FUTA you owe to the IRS.