What is FUTA? The federal unemployment tax and its 2026 cost

By the HRPricing editorial teamReviewed October 18, 2026How we research and score

FUTA is the Federal Unemployment Tax Act tax: employers pay 6.0% on the first $7,000 of each employee's wages, and a credit of up to 5.4% for paying state unemployment tax on time brings it down to 0.6%, or $42 per employee a year (IRS Topic 759, checked October 2026). Employees pay nothing. The catch is credit reduction: in some states the credit shrinks and the bill rises.

FUTA is an employer-only federal payroll tax of 6.0% on the first $7,000 of each employee's annual wages, reduced to 0.6% net by a credit for state unemployment taxes paid.

On this page

The 2026 FUTA math
FUTA credit reduction: the 2026 watch list
Deposits and filing
FUTA when you join or leave a PEO

The 2026 FUTA math

Gross rate: 6.0%on the first $7,000
Maximum credit: 5.4%for state tax paid on time
Net rate: 0.6%$42 per employee
Return: Form 9402026 due Feb 1, 2027

Without the credit, FUTA would be $7,000 x 6.0% = $420 per employee. The credit is worth $378, which leaves $42. Pay is counted per employee, so a worker earning $200,000 costs the same $42 as one earning $7,000.

The full credit assumes your state SUTA tax is paid on time (IRS Topic 759).

FUTA credit reduction: the 2026 watch list

When a state borrows from the federal government to pay unemployment benefits and does not repay on time, employers in that state lose part of the 5.4% credit. The Department of Labor lists the potential 2026 credit reduction states as California (1.5%, or 5.3% if an extra add-on applies) and the US Virgin Islands (4.8%). The Virgin Islands said on May 8, 2026 that it repaid its loans. The final list comes after November 10, 2026.

FUTA cost per employee, 2026
Case	Net FUTA rate	Cost per employee
Most states	0.6%	$42
California at 1.5% reduction	2.1%	$147
California at 5.3% reduction	5.9%	$413

Source: IRS Topic 759; US DOL ETA FUTA credit reductions page (updated Sep 11, 2026), potential list only. Checked October 2026.

The extra amount is figured when you file the 2026 Form 940, after the final list is out, so it shows up in early 2027 rather than in your deposits during the year. Our California payroll tax page tracks the final number.

Deposits and filing

FUTA is figured each quarter. Once the amount you owe passes $500, deposit it by the last day of the month after the quarter ends; smaller amounts roll forward. A business with 12 employees owes 12 x $42 = $504 at 0.6%, all of it in the first quarter if every employee earns $7,000 by the end of March, so it deposits by April 30. The 2026 Form 940 is due February 1, 2027, or February 10, 2027 if every deposit was made on time (IRS).

Household employers owe FUTA once they pay $1,000 or more in cash wages in a calendar quarter (IRS Publication 926). Full-service payroll services file Form 940 for you.

FUTA when you join or leave a PEO

With an IRS-certified PEO, the CPEO is treated as the successor employer, so the FUTA and Social Security wage bases do not restart when you join or leave mid-year (26 USC 3511(b)). That rule is written for CPEOs only. Ask any other PEO in writing how it handles wage bases before you sign. The list of certified providers is on our IRS CPEO list page.

Related terms: FICA is the Social Security and Medicare tax both sides pay; SUTA is the state unemployment tax that earns the FUTA credit.

Frequently asked questions

What is FUTA?

FUTA is the federal unemployment tax under the Federal Unemployment Tax Act. Employers pay 6.0% on the first $7,000 of each employee's yearly wages, minus a credit of up to 5.4% for state unemployment tax paid on time, so the usual cost is 0.6%, or $42 per employee (IRS Topic 759).

What is the FUTA tax rate for 2026?

The 2026 FUTA rate is 6.0% on the first $7,000 of wages per employee. With the full 5.4% state credit the net rate is 0.6% ($42 per employee). Employers in a credit reduction state pay more; California could see 2.1% ($147) or 5.9% ($413) if it is on the final DOL list after November 10, 2026.

What is a FUTA credit reduction?

A FUTA credit reduction cuts the 5.4% credit for employers in a state that has not repaid federal unemployment loans. The Department of Labor's potential list for 2026 names California (1.5%, or 5.3% with an add-on) and the US Virgin Islands (4.8%, which says it has repaid). The extra tax is paid with Form 940 in early 2027.

Do employees pay FUTA tax?

No. FUTA is paid only by the employer and must not be withheld from employee pay. Employees see FICA and income tax on their stubs, not FUTA.

When is Form 940 due for 2026?

Form 940 for 2026 is due February 1, 2027, because January 31 falls on a Sunday. If you deposited all FUTA tax on time, you have until February 10, 2027 (IRS employment tax due dates).

Sources (7)

IRS: Topic 759, Form 940 and FUTA tax (updated Sep 24, 2026) (checked Oct 16, 2026)
US Department of Labor, ETA: FUTA credit reductions (page updated Sep 11, 2026) (checked Oct 16, 2026)
US Department of Labor, ETA: Unemployment insurance tax topic (checked Oct 18, 2026)
IRS: Instructions for Form 940 (2025) (checked Oct 16, 2026)
IRS: Employment tax due dates (checked Oct 16, 2026)
IRS: Publication 926 (2026), Household Employer's Tax Guide (checked Oct 16, 2026)
Legal Information Institute (text of 26 USC 3511): 26 U.S. Code 3511, Certified professional employer organizations (checked Oct 16, 2026)

This page is general information, not tax, legal or accounting advice. Rules and rates change, so check the official source linked above before you file or sign a contract. Read our disclaimer.