The 2026 FUTA tax rate is 6.0% on the first $7,000 of each employee’s wages, but most employers pay an effective rate of just 0.6% after the 5.4% state unemployment tax credit — a maximum of about $42 per employee per year. FUTA (the Federal Unemployment Tax Act) is paid only by employers, not employees, and funds unemployment benefits. You report it on IRS Form 940, due by January 31 for the prior tax year.
This guide focuses on the rate and the math — how to actually calculate your FUTA liability. For the broader background on what FUTA is and why it exists, see our companion guide, understanding the Federal Unemployment Tax Act (FUTA).
The 2026 FUTA Tax Rate
- Statutory rate: 6.0% on the first $7,000 of each employee’s annual wages
- State credit: up to 5.4% if you pay your state unemployment (SUI) taxes in full and on time
- Effective rate: 0.6% for most employers after the credit
- Wage base: only the first $7,000 per employee is taxed
- Maximum per employee: $420 at the full 6.0%, or about $42 at the 0.6% effective rate
According to the IRS, the wage base and structure are unchanged for 2026 — 6.0% on the first $7,000, with the 5.4% credit available to employers in good standing with their state.
How to Calculate FUTA Tax (Step by Step)
- Step 1: Take each employee’s wages, up to the $7,000 cap.
- Step 2: Multiply by your FUTA rate — 0.6% if you qualify for the full credit, or 6.0% if you don’t.
- Step 3: Add up the total across all employees.
Example: An employee earning $15,000 is only taxed on the first $7,000. At the 0.6% effective rate, that’s $42. An employee earning $5,000 is taxed on the full $5,000, for $30. Wages above $7,000 per employee are never subject to FUTA.
The State Credit and Credit Reduction States
The 5.4% credit is the reason most employers pay only 0.6%. You earn it by paying your state unemployment insurance taxes in full and on time. But there’s an exception: if your state borrowed from the federal government to pay unemployment benefits and hasn’t repaid the loan, the federal government reduces the credit — raising the effective FUTA rate for employers in that state. For 2026, a small number of jurisdictions (such as California and the U.S. Virgin Islands) have faced credit reductions. Check whether your state is affected before finalizing payroll.
Who Has to Pay FUTA?
Per the IRS, you generally owe FUTA if you meet either test:
- You paid $1,500 or more in wages in any calendar quarter, or
- You had one or more employees for at least part of a day in 20 or more different weeks of the year.
Importantly, independent contractors paid on a 1099 are not subject to FUTA — but misclassifying an employee as a contractor can trigger back taxes and penalties. See what a 1099 form is and when you need one, and our broader payroll tax guide for employers for how FUTA fits with your other obligations.
When and How to File
- Form 940 is the annual FUTA return, due January 31 for the prior year.
- Quarterly deposits are required once your accumulated FUTA liability exceeds $500.
- Payment is made electronically through the Electronic Federal Tax Payment System (EFTPS).
- Late deposits can trigger a failure-to-deposit penalty ranging from 2% to 15% of the unpaid amount.
If you want to see how FUTA, payroll, and workers comp fit together across your workforce, this baseline tool can serve as a starting reference: https://peopaygo.com/get-rate-exchange-blogs/u/step-1.
Frequently Asked Questions
What is the FUTA tax rate for 2026?
The statutory rate is 6.0% on the first $7,000 of each employee’s wages. With the 5.4% credit for timely state unemployment taxes, most employers pay an effective rate of 0.6% — about $42 per employee per year.
How do you calculate FUTA tax?
Multiply each employee’s wages (capped at $7,000) by your FUTA rate — 0.6% with the full credit or 6.0% without — then total it across employees.
Who pays FUTA tax — the employer or employee?
Only the employer pays FUTA. Unlike Social Security and Medicare, it is not withheld from employee wages.
Are independent contractors subject to FUTA?
No. 1099 contractors are not subject to FUTA. However, misclassifying an employee as a contractor can result in back taxes, penalties, and interest.
The Bottom Line
FUTA in 2026 is 6.0% on the first $7,000 of each employee’s wages, dropping to a 0.6% effective rate — roughly $42 per employee — for employers who pay their state unemployment taxes on time. Calculate it per employee up to the $7,000 cap, watch for credit-reduction states, and file Form 940 by January 31.
If you want to see how bundling payroll, taxes, and workers comp through a single integrated provider keeps filings like Form 940 on track, this baseline tool can serve as a starting reference: https://peopaygo.com/get-rate-exchange-blogs/u/step-1.
Running payroll this year? Confirm your effective FUTA rate, check whether your state has a credit reduction, and calendar Form 940 for January 31.
This article is for informational purposes only and does not constitute legal or tax advice. FUTA rates, wage bases, credit reductions, and filing rules can change. Consult the IRS or a qualified tax professional for guidance specific to your business.
