This Act requires employers to pay a tax on the wages paid to their employees, which is then used to create a pool of funds that can be used for unemployment benefits. The tax is based on only the first $7,000 of wages paid to each employee in a calendar year. If an employee has multiple employees in a single year, then each one must withhold this tax up to the wage cap of $7,000, even if the grand total employee earnings for the year exceeds that amount.
The FUTA tax rate is currently 6.2%, which can then be reduced by the amount of state unemployment taxes paid, usually resulting in a net tax of 0.8% (even though the amount of state unemployment taxes paid may be quite small).
The FUTA tax applies to an employer if it either employs at least one person during each of any twenty weeks in a calendar year, or pays at least $1,500 in wages during any calendar quarter during the current or preceding year. As soon as liability under FUTA is proven, a business is liable for the tax for the full calendar year (even if the test is first applied later in the year), as well as the next calendar year (even if it fails the test in the next calendar year).