What Is FUTA? Overview and How It Works

By Kristi Waterworth – Updated Jun 28, 2025 at 6:54 PM | Fact-checked by Frank Bass

Key Points

FUTA taxes fund unemployment insurance and job services, paid by employers, not employees.
FUTA tax applies to the first $7,000 of an employee's quarterly wages at a 6% rate.
Employers can receive a FUTA tax credit of up to 5.4% if SUTA taxes are paid in a timely manner.

Business owners are often responsible for paying federal unemployment tax on behalf of their employees, thanks to the Federal Unemployment Tax Act (FUTA). Read on to learn more about what this is and how it works for both employees and employers.

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Person filling out unemployment benefits application form. — Image source: Getty Images.

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About the Author

Kristi Waterworth has been a contributing real estate and financial expert at The Motley Fool, covering real estate, investing, and personal finance topics, since 2020. Kristi has been interviewed by various TV media outlets and podcasts for her real estate investing expertise – from residential real estate to digital real estate and everything in between. Kristi’s journalist career spans over 25 years, and she has written about real estate investing, homeownership, and home construction specifically for the last decade. She was also previously a licensed Realtor and general building contractor before the Great Recession and housing market collapse. She holds a bachelor’s degree in American history from Columbia College in Missouri.

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