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FUTA tax is a tax paid by employers on behalf of their employees in the US, established by the Federal Unemployment Tax Law to provide resources for unemployment benefits. It is not deducted from employees’ paychecks and is subject to certain qualifications and changing regulations.
In the United States, FUTA tax is a specific type of tax that is assessed by the Internal Revenue Service and paid by employers on behalf of their employees. The tax was established by the Federal Unemployment Tax Law and provides resources that are used when a former employee is eligible for unemployment benefits. FUTA tax works hand in hand with state unemployment agencies and systems to ensure that benefits are distributed in accordance with the unemployment laws prevailing in the state in which the former employee resides.
FUTA tax is somewhat different from other types of taxes associated with an employee. This particular type of tax is not considered withholding, since the amount assessed and remitted by the employer is not deducted from employees’ paychecks. Instead, the employer pays the tax as a benefit to the employee that can be used when and if the employee ever qualifies for unemployment benefits.
There are some qualifications that must be met in order for the employer to pay FUTA tax on a particular employee. Employers must pay the tax on employees who are not classified as farmworkers or homeworkers, and who were paid more than $1,500 US dollars in any quarter of the tax year. For farm workers, the employer must pay FUTA tax on each worker if he or she employs at least ten workers on at least one day per week for 20 weeks. Home-based workers are subject to FUTA tax if the individual earns more than $1,000 USD in a given calendar quarter.
The amount of FUTA tax is determined by applying a percentage to the total amount of wages paid to each eligible employee. That percentage is subject to change, according to current regulations established by the Internal Revenue Service (IRS). The tax is assessed until the employee reaches a specified amount of taxable income during the tax year.
As with the percentage used to calculate the amount of tax, the total amount of taxable wages that must be earned before the employer is no longer required to calculate and remit FUTA tax to the employee is subject to change, according to regulations in place by the IRS. For this reason, employers must review the federal tax codes at the beginning of each new tax year and ensure that they collect FUTA tax in accordance with the most recent guidelines issued by the Internal Revenue Service.
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