FUTA tax and SUTA explained: 2026 rates, wage bases and Form 940

FUTA tax is the tax created by the Federal Unemployment Tax Act, and only employers pay it. The IRS rate is 6.0% on the first $7,000 of wages you pay each employee in a calendar year, but employers that pay their state unemployment tax in full and on time receive a credit of up to 5.4%, so the rate most businesses actually pay is 0.6%: $42.00 per employee per year. SUTA is the state version. Every state runs its own unemployment insurance tax with its own wage base and a rate assigned to your business, and it is usually the larger bill of the two. Together, the two taxes fund unemployment benefits for people who lose a job through no fault of their own. This guide covers who must pay, which wages count, deposit rules, the 2026 Form 940 deadlines, credit reduction states, 2026 SUTA rates in seven large states, and how experience rating works, with a worked example for a nine-person coffee shop in Texas.

What FUTA tax is: the 6.0% rate and the $7,000 wage base

FUTA has three numbers worth memorizing, and none of them changed for 2026 because all three are written into federal law rather than adjusted each year.

• 6.0% is the gross rate. The IRS applies it to FUTA taxable wages.
• $7,000 is the federal wage base. Once an employee has been paid $7,000 in a calendar year, no more FUTA is owed on that person until January 1. Because the base is low, most of a full-time employee’s FUTA is owed in the first quarter.
• 5.4% is the maximum credit for state unemployment tax. IRS Tax Topic 759 puts it plainly: if you are entitled to the maximum 5.4% credit, the FUTA tax rate after credit is 0.6%.

To get the full credit, three things must be true: you paid your state unemployment tax by the Form 940 due date, you paid it on the same wages that are subject to FUTA, and your state is not a credit reduction state. Miss any of them and your federal bill rises. FUTA is never withheld from employees; it sits alongside the employer share of Social Security and Medicare as a cost on top of wages. Our guide to employer payroll taxes in 2026 adds all of those together, and what is FICA covers the Social Security and Medicare side.

FUTA tax calculator

Enter your headcount and the average annual wages per employee to estimate your FUTA for the year. Anyone earning $7,000 or more owes the full $42.00, so the average matters only for employees below the wage base. Add a credit reduction percentage if you pay wages in a credit reduction state, and your state unemployment rate and wage base for a SUTA estimate.

The estimate uses the 6.0% rate, the $7,000 wage base and the full 5.4% credit, and treats every employee as earning the average you enter. If your wages vary a lot, the worked example below shows the person-by-person method, which is how your payroll software and Form 940 do it.

Who has to pay FUTA tax

The IRS instructions for Form 940 give two tests. Answer yes to either one and you owe FUTA for the whole year, on every employee’s wages, including the wages that got you over the line.

1. You paid wages of $1,500 or more to employees in any calendar quarter during 2025 or 2026, or
2. You had one or more employees for at least some part of a day in any 20 or more different weeks in 2025 or in 2026. Count full-time, part-time and temporary employees. Partners in a partnership do not count.

Almost any business with a single regular employee meets the second test by late May. Three groups have their own tests:

• Household employers (a nanny, housekeeper or home health aide you employ directly) owe FUTA only if they paid cash wages of $1,000 or more in any calendar quarter of 2025 or 2026, and they usually report on Schedule H with their personal return instead of Form 940.
• Agricultural employers owe FUTA if they paid cash wages of $20,000 or more to farmworkers in any quarter, or employed 10 or more farmworkers during some part of a day in 20 or more different weeks. Wages paid to H-2A visa workers are not subject to FUTA.
• Section 501(c)(3) organizations and state and local governments are exempt and file no Form 940. More on this below.

Payments to a properly classified independent contractor are not wages, so they carry no FUTA and no SUTA. The flip side is that misclassifying an employee as a contractor leaves both taxes unpaid for every year it goes on, which is one of the reasons the IRS and state agencies audit it; our 1099 vs W2 guide walks through the tests.

What wages count for FUTA

FUTA wages are broad. Hourly pay, salary, overtime, bonuses, commissions, tips an employee reports to you of $20 or more in a month, and most taxable fringe benefits all count toward the $7,000. An employee’s own 401(k) deferrals are still FUTA wages; only your contribution as the employer is exempt. The Form 940 instructions list the main payments that are left out:

• Wages above $7,000 per employee for the year (line 5 of Form 940).
• Employer contributions to qualified retirement plans. Salary-reduction contributions to a SIMPLE plan are not exempt.
• Group-term life insurance and certain other fringe benefits covered in IRS Publication 15-B, including health insurance premiums paid through a section 125 cafeteria plan.
• Dependent care assistance up to $5,000 per employee ($2,500 if married filing separately).
• Payments made under a workers’ compensation law for a work-related injury or illness.
• Payments for services provided by your parent, your spouse, or your child under age 21, when you are a sole proprietor.

If you bought a business during the year and kept its employees, you may be a successor employer and can count the wages the previous owner paid toward each employee’s $7,000, so you do not pay FUTA twice on the same person. The Form 940 line 5 instructions walk through it.

FUTA deposit rules and Form 940 due dates for 2026

Form 940 is an annual return, but the tax is often paid during the year. The rule is the $500 threshold: if your FUTA liability for a quarter is $500 or less, carry it to the next quarter. Keep carrying it until the running total passes $500, then deposit the whole amount by the last day of the month after that quarter. If your total for the year never passes $500, you can simply pay it with Form 940. All deposits go through the Electronic Federal Tax Payment System (EFTPS); a deposit that falls due on a weekend or holiday is on time if made by the next business day.

Form 940 for 2026 is due Monday, February 1, 2027, because January 31 falls on a Sunday. The IRS draft 2026 instructions add: if you deposited all your FUTA tax when it was due, you may file Form 940 by February 10, 2027. The same date governs the state credit: state unemployment tax must be paid by February 1, 2027 (or February 10 if that is your filing date) to earn the full 5.4%. The same week also brings the W-2 deadline and the fourth-quarter Form 941, so most small employers close the payroll year in one sitting. Our step-by-step how to process payroll guide puts the quarterly and annual filings on one calendar.

Two more filing notes. You must attach Schedule A (Form 940) if you paid wages in more than one state or in any credit reduction state. And a business that owed FUTA last year but paid no wages this year still files Form 940, checking the box for no payments to employees.

FUTA credit reduction states for 2026

When a state’s unemployment fund runs dry, it borrows from the federal government. If the loan is still outstanding on two consecutive January 1s, employers in that state lose 0.3% of their FUTA credit for that year, and another 0.3% for each year the loan remains. The money goes to the federal government to pay down the state’s balance, and it is collected through Schedule A of Form 940 with the fourth-quarter deposit.

The US Department of Labor sets the list, and its potential list for 2026, published on its FUTA credit reduction page in January, names two jurisdictions: California, with a base reduction of 1.5%, and the US Virgin Islands, at 4.8%. The IRS built its draft 2026 Schedule A on the same two names. California is also listed for a potential “benefit cost rate” add-on of 3.8%; in prior years the state has had that add-on waived, leaving only the base reduction, and the Department of Labor makes the final determination after November 10, 2026. Confirm the figure on the final 2026 Schedule A before you file. For 2025 the final reductions were 1.2% for California and 4.5% for the Virgin Islands.

The cost is easy to work out. A 1.5% reduction on $7,000 adds $105 per employee who reaches the wage base, so a California employer’s effective FUTA rate becomes 2.1%, or $147 per employee instead of $42. Employers in the other 48 states and DC pay the normal 0.6%.

SUTA tax: 2026 state unemployment rates and wage bases

SUTA (also called SUI, UI tax, reemployment tax or UC tax, depending on the state) is where unemployment tax gets expensive and where it varies most. Each state sets a taxable wage base and a rate schedule, assigns new employers a fixed entry rate, and then moves them to an experience-based rate once it has enough claims history. Reports and payments are quarterly, due at the end of the month after the quarter in most states. The table shows seven large states for 2026, taken from each state agency’s published figures. Your own rate is on the notice the state mails or posts to your employer account each year; use that, not the new-employer rate, once you have one.

A few things stand out. The wage base drives cost as much as the rate does: a 2.7% rate on Texas’s $9,000 base tops out at $243 per employee, while Washington’s base of $78,200 means a 1.5% rate costs $1,173 for an employee earning that much. New York’s base jumped from $12,800 in 2025 to $17,600 in 2026 and now resets every January 1 to 18% of the state average annual wage, so budget for it to keep climbing. Pennsylvania, Alaska and New Jersey are the states that also take a small employee contribution through withholding. Most states publish 2027 rates and wage bases in November and December, so check your agency’s site before the first payroll of January.

How experience rating sets your SUTA rate

After the new-employer period, your state computes a rate from your own record, which is why two restaurants on the same street can pay very different unemployment tax. Most states use some form of benefit ratio: the unemployment benefits charged to your account over a lookback period, divided by your taxable payroll over the same period. Florida looks back three years; Washington uses four fiscal years and sorts employers into 40 rate classes. Pennsylvania adds a reserve ratio factor, which compares the balance in your employer account to your payroll, and a state adjustment factor on top. Every state then adds shared costs for benefits that cannot be charged to any one employer, such as a former employer that went out of business, and some add solvency surcharges when the trust fund is low.

The practical levers are the same everywhere:

• Respond to every claim notice by its deadline. If you do not reply, benefits are usually charged to your account by default, even if the person quit or was fired for misconduct.
• Document separations. A signed attendance policy, dated write-ups and the final-pay record decide most contested claims. Keep them with the employee’s file in your HR documents.
• Avoid short layoffs where you can. Reducing hours or using a state shared-work program spreads the cost; a layoff followed by a rehire charges your account in full.
• Ask about voluntary contributions. Some states, Washington among them, let you buy down next year’s rate by paying extra into your account before a deadline. It pays off only when the payment is smaller than the rate savings.

SUTA dumping is illegal

One lever is off the table. “SUTA dumping” is shuffling payroll between companies to escape a high rate: forming a new entity with a clean 2.7% rate and moving staff into it, or buying a shell company for its low rate. The federal SUTA Dumping Prevention Act of 2004, now at 42 U.S.C. 503(k), requires every state to transfer a business’s unemployment experience along with the business when both are under common control, to deny the transfer of a low rate when the acquisition was made solely or primarily for the purpose of obtaining a lower rate of contributions, and to impose meaningful civil and criminal penalties on anyone who knowingly does it or advises someone else to. States also run detection programs that cross-match wage reports. If you reorganize for real business reasons, tell the state agency and let it assign the rate; if the only reason is the rate, do not.

Worked example: Northfield Coffee’s unemployment taxes for 2026

Northfield Coffee in Austin, Texas, has nine hourly employees. Eight worked the full year; Dana Brooks joined as a barista on November 2, 2026. The wages below are illustrative annual totals for 2026; Texas SUTA uses the 2.7% new-employer rate as an illustration, since the Texas Workforce Commission assigns each business its own rate.

On Form 940 the arithmetic reads: total payments $273,500, minus $213,000 of wages above the $7,000 base, leaves $60,500 of FUTA taxable wages. Tax before the credit is 6.0% × $60,500 = $3,630.00; the state credit is 5.4% × $60,500 = $3,267.00; FUTA due is $363.00. Texas SUTA on the same employees is $2,065.50, nearly six times the federal tax, which is typical. Had Northfield been in California instead, the 1.5% potential credit reduction would add 1.5% × $60,500 = $907.50 to its federal bill.

The deposit schedule shows why the $500 rule matters to small employers. If wages are spread evenly through the year, the six full-timers hit $7,000 in the first quarter and the two part-timers get most of the way, so first-quarter FUTA is about $315. That is under $500, so nothing is deposited. The second quarter adds roughly $21 as the part-timers reach the base; the third quarter adds nothing; the fourth adds Dana’s $27. The year ends at $363.00, never crossing $500, so Northfield pays the whole amount with Form 940 by February 1, 2027. Add three more full-time hires and the year’s total reaches $489; add four and it tips over $500, which would require a deposit by the end of the month after the quarter in which the running total crossed the line. Texas SUTA, by contrast, is reported and paid every quarter regardless of size.

Nonprofits and household employers

501(c)(3) nonprofits. The IRS exempts organizations recognized under section 501(c)(3) from FUTA entirely, and says the exemption cannot be waived; they file no Form 940. Other tax-exempt groups, such as 501(c)(4) social welfare organizations and 501(c)(6) trade associations, pay FUTA like any business. State law is different: most states cover 501(c)(3) employees for unemployment benefits and let the organization choose between paying SUTA at an assigned rate or becoming a reimbursable employer, which files quarterly wage reports but pays the state back dollar for dollar for benefits actually drawn by former staff. Washington’s Employment Security Department, for example, bills reimbursable employers quarterly and requires at least two calendar years in that status once elected. Reimbursing is cheaper for a nonprofit with little turnover and riskier for one that runs on grant-funded positions that end.

Household employers. If you pay a nanny, caregiver or housekeeper cash wages of $1,000 or more in any calendar quarter of 2025 or 2026, you owe FUTA on the first $7,000 of each household employee’s wages at the same 6.0% less credit, and you report it on Schedule H (Form 1040) with your personal return rather than on Form 940. Wages paid to your spouse, your child under 21 or your parent do not count. The IRS says Social Security and Medicare withholding kicks in separately at $3,000 of cash wages to one household employee in 2026. Most states also require household employers to register and pay SUTA once they cross the state’s threshold, so check your state agency when you hire.

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