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Excerpt From Our Online Payroll Compliance Course

Employers Subject To Federal Unemployment Taxes

The Federal Unemployment Tax Act (FUTA), with state 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. Only the employer pays FUTA tax; it is not withheld from the employee's wages.

There are three tests used to determine if an employer is subject to FUTA taxes:

  1. In general, the employer is subject to FUTA tax on the wages paid to employees who are not farm workers or household workers if:
    • During the calendar quarter the wages the employer paid to employees who are not farm workers or household workers totaled $2,000 or more, or
    • In each of the 20 different calendar weeks, there was at least a part of a day in which there was an employee in this category. The 20 weeks do not have to be consecutive. Nor does it have to be the same employee each week. Sick leave or vacations are counted.
  2. Household workers: The employer is subject to FUTA tax on the cash wages paid to household workers if the wages totaled $1,000 or more in any calendar quarter of the current or preceding year. A household worker is an employee who performs domestic services in a private home, local college club, fraternity, or sorority.
  3. Farm Workers: The employer is subject to FUTA tax on wages paid to farm workers if:
    • In any calendar quarter the cash wages paid for the farm labor totals $20,000 or more, or
    • In each of the 20 calendar weeks there was at least one day in which there were 10 or more farm worker employees. The weeks do not have to be consecutive. It does not have to be the same workers, nor do they have to work a full day. Sick and vacation are counted.

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