Unemployment Taxes

The Federal Unemployment Tax (FUTA), together with state (SUTA)unemployment systems, provides for payments of unemployment compensation to workers who have lost their jobs. Most employers pay both a federal and a state unemployment tax. A list of state unemployment tax agencies, including addresses and phone numbers, is available in IRS Publication 926, Household Employer's Tax Guide.

Only the employer pays unemployment tax; it is not withheld from the employees' wages.

Use the following three tests to determine whether you must pay FUTA tax. Each test applies to a different category of employee, and each is independent of the others. If a test describes your situation, you are subject to FUTA tax on the wages that you pay to employees in that category during the current calendar year.

General Test

You are subject to FUTA tax on the wages that you pay employees who are not farmworkers or household workers if in the current or preceding calendar year:
- You paid wages of $1,500 or more in any calendar quarter or
- You had one or more employees for at least some part of a day in any 20 or more different weeks
Household Employees Test

You are subject to FUTA tax only if you paid total cash wages of $1,000 or more (for all household employees) in any calendar quarter. A household worker is an employee who performs household work in a private home, local college club, or local fraternity or sorority chapter
Farmworkers Test

You are subject to Futa tax on the wages you pay to farmworkers if:
- You paid cash wages of $20,000 or more to farmworkers during any calendar quarter or
- You employed 10 or more farmworkers during at least some part of a day (whether or not at the same time) during any 20 or more different weeks

Successor Employer

If you acquired a business from an employer who was liable for FUTA tax, you may be able to count the wages that employer paid to the employees who continue to work for you when you figure the $7,000 FUTA wage base. See the Instructions for Form 940.