FUTA and SUTA: Employer Payroll Taxes Explained
FUTA and SUTA are unemployment taxes paid entirely by employers. Workers never see them on a paystub — but as a small business owner, they shape your hiring costs.
FUTA — Federal Unemployment Tax Act
- Rate: 6.0% on the first $7,000 of each employee's wages = max $420/employee/year
- Credit: Up to 5.4% credit if you pay state unemployment on time, dropping effective FUTA to 0.6% ($42/employee/year)
- Reported quarterly via deposits; annual Form 940
SUTA — State Unemployment Tax Act
Every state runs its own unemployment insurance fund. Rates and wage bases vary widely:
- Wage bases range from $7,000 (CA, FL, TN) to over $50,000 (WA, HI)
- Rates are experience-rated: new employers start mid-pack, then move based on layoff history
- Typical effective rate: 1–6% of the state wage base
Credit reduction states
States that borrow from the federal unemployment fund and don't repay can lose part of the 5.4% FUTA credit. California, NY, and the Virgin Islands have all been credit-reduction at various times. The IRS publishes the annual list with Form 940 instructions.
Who's exempt
- Sole proprietors don't pay FUTA/SUTA on themselves
- S-Corp owner-employees: yes, on their W-2 wages
- 1099 contractors: no — that's the point of contractor vs employee
- Certain agricultural, household, and family employees: special rules
Common mistakes that get expensive
- Missing FUTA deposit deadlines and losing the credit
- Misclassifying employees as contractors (states audit aggressively)
- Forgetting state new-hire reporting
- Not registering for SUTA in every state where employees live and work
Run your own numbers
Use our free, in-browser calculators — no signup, no data collection.
Open the calculators