Question 1

What is Form 940 and the FUTA tax rate?

Accepted Answer

Form 940 is the Employer's Annual Federal Unemployment (FUTA) Tax Return. FUTA tax is paid entirely by the employer — no employee deduction. The gross FUTA rate is 6.0% on the first $7,000 of each employee's wages per year. Most employers receive a 5.4% SUTA credit (state unemployment tax), reducing the net FUTA rate to 0.6% (6.0% − 5.4%). The effective annual FUTA per employee is typically $42 ($7,000 × 0.6%). Form 940 is due January 31 of the following year (January 31, 2027 for 2026 wages).

Question 2

What are credit reduction states for FUTA?

Accepted Answer

If a state borrows from the federal unemployment trust fund and has not repaid the loan by November 10 of the current year, employers in that state receive a reduced SUTA credit. The credit reduction is 0.3% per year the loan is outstanding, up to 2.7%. For 2026, credit reduction states typically include California, New York, and the US Virgin Islands. An employer in California might pay 6.0% − 5.4% + 0.9% (3 years) = 1.5% effective FUTA rate instead of 0.6%. Additional 2.7% disallowance (Benefit Cost Rate add-on) can further reduce credit for persistent loan states.

Question 3

When must FUTA deposits be made?

Accepted Answer

FUTA deposits are required quarterly if the accumulated FUTA tax exceeds $500. If your liability is $500 or less at the end of any quarter, you can carry it forward. Required quarterly deposit dates: April 30 (Q1), July 31 (Q2), October 31 (Q3). Any remaining liability plus the Q4 amount is either deposited by January 31 or paid with Form 940. If total annual FUTA liability is $500 or less, you may pay it with the Form 940 filing on January 31.

Question 4

What wages are exempt from FUTA?

Accepted Answer

Exempt wages include: amounts paid over $7,000 per employee (over the wage base), fringe benefits (health insurance premiums, qualified retirement plan contributions, de minimis fringe benefits), dependent care assistance up to $5,000, group-term life insurance up to $50,000, payments to certain family members (under 18 working in parent's sole proprietorship), and agricultural labor in some situations. Payments to corporate officers are generally subject to FUTA. Independent contractors (1099) are not subject to FUTA.

Question 5

How does the FUTA wage base work for employees who change jobs mid-year?

Accepted Answer

Each employer applies the $7,000 wage base independently. If an employee earned $5,000 at Employer A and then $4,000 at Employer B, both employers apply FUTA to their portion (Employer A on $5,000, Employer B on $4,000), because the wage bases do not transfer between employers. Only when one employer has paid the employee $7,000 in a calendar year does that employer stop paying FUTA for that employee. There is no credit for FUTA taxes paid by a prior employer on the same employee.

Line 3 — Total Wages Paid	$420,000
Line 4 — Exempt Wages	($364,000)
Line 5 — Excess Wages over $7,000 (included in exempt)	—
Line 6 — FUTA Taxable Wages (Line 3 − Line 4)	$56,000
Line 8 — FUTA Tax Before Adjustments (6.0%)	$3,360
Line 10 — SUTA Credit Adjustment (max 5.4%)	($3,024)
Credit Reduction (Schedule A)	$0
Line 12 — Total FUTA Tax	$336
Effective FUTA Rate	0.60%
Average FUTA Per Employee	$42.00
Form 940 Due Date	Jan 31, 2027

Form 940 FUTA Tax Calculator 2026 — Annual Federal Unemployment

Form 940 Line-by-Line Summary

How to Use the Form 940 FUTA Calculator

2026 FUTA Formula

Credit Reduction States 2026

Per-Employee FUTA Tracker + Credit Reduction States + Deposit Schedule

Effective FUTA Rate by State

Frequently Asked Questions