Federal Unemployment Tax Act (FUTA)

Meaning & Definition

The Federal Unemployment Tax Act (FUTA) is federal legislation in the United States that requires employers to pay a federal payroll tax to provide money for unemployment compensation programs (such as funds available to pay temporary financial assistance to employees who have been let go or lost their job through no fault of their own). Employers are assessed the FUTA tax (not employees).

Important Aspects of the Federal Unemployment Tax Act

• Provides unemployment benefits (financial assistance) for qualified employees.
• Offers job-seeking support for those who have lost employment.
• A required payroll tax is collected from employers within the US.
• Maintains stability in the economy and protects the employees.
• Assists in providing a proper payroll system and tax compliance within the payroll system.
• Important for a global HR team that manages its US payroll.

Legal & Regulatory Considerations

The Federal Unemployment Tax Act (Administered by the Internal Revenue Service) governs the FUTA in the U.S.  Employers are required to pay FUTA tax annually (quarterly deposit if necessary).