The Federal Unemployment Tax Act (FUTA) is a federal law that was enacted in 1939 as part of the Social Security Act. It is designed to provide temporary financial assistance to workers who have lost their jobs through no fault of their own.
Why was FUTA created?
FUTA was created during the Great Depression, when many people were losing their jobs and struggling to find new employment. The purpose of the Act was to provide a safety net for these workers by establishing a system of unemployment insurance.
How does FUTA work?
Under FUTA, employers who pay over $1,500 in employee wages in a calendar year are required to pay a tax on each employee’s wages, which is used to fund federal unemployment insurance programs. This tax is 6% of the first $7,000 of each employee’s annual wages. FUTA tax is paid in addition to State Unemployment Insurance (SUI) tax as a part of employers’ payroll taxes.
When an employee is laid off or terminated for no fault of their own, they can file an unemployment insurance claim to access these funds for assistance.
You can read more on how to report and pay FUTA taxes here.
What are the benefits of FUTA?
FUTA has a few important benefits during times of economic hardship. The FUTA tax fund:
- Provides financial support for workers who have lost their jobs through no fault of their own.
- Helps stimulate the economy during times of high unemployment.
- Promotes social and economic stability by reducing the impact of job loss on individuals and families.
Who is responsible for administering FUTA?
The Internal Revenue Service (IRS) is responsible for collecting and distributing FUTA taxes. They also oversee compliance with the Act, including ensuring that employers are accurately reporting their FUTA taxes via form 940 and making any required payments.
