Federal Unemployment Tax Act (FUTA)

Liability Requirements
Unemployment insurance is financed through both federal and state payroll taxes. The Federal Unemployment Tax Act (FUTA) was created to finance all administrative expenses of the federal/state unemployment insurance system and the federal costs involved in extended benefits. The Kansas unemployment tax is used only for the payment of regular benefits to qualified unemployed workers.

Most employers liable for Kansas unemployment tax also are liable for the FUTA tax if:

  • Employment is agricultural and you employ 10 or more workers in any portion of 20 different weeks in a calendar year, or have a payroll of $20,000 or more cash wages in any calendar quarter.
  • Employment is domestic service and you have a quarterly payroll of $1,000 or more cash wages in any one calendar quarter during the current or previous calendar year.
  • Employment is in a business other than an agricultural, domestic or nonprofit organization exempt under Sec. 501(c)(3) of the Internal Revenue Code and you have one or more employees who work for any portion of a day in 20 different weeks in a calendar year, or your gross payroll for any calendar quarter is $1,500 or more.

Note: Nonprofit organizations exempt under Sec. 501(c)(3) and governmental entities are not subject to FUTA.

Under the current FUTA, a payroll tax of 6.0 percent is levied on the first $7,000 in annual earnings paid each employee. As an enticement for states to maintain their own unemployment insurance programs, federal law provides a tax credit offset of 5.4 percent for timely contributions paid into an approved state unemployment insurance fund.

Through 6/30/2011        Beginning 7/1/2011    
FUTA Tax Rate..........................
6.2%         FUTA Tax Rate..........................
Employer Credit.......................
  Employer Credit.......................
Net FUTA Tax Rate...................
  Net FUTA Tax Rate...................

All employers in Kansas, regardless of their experience rate, are allowed the 5.4 percent credit.

Form 940Employer's Annual Federal Unemployment Tax Return, must be filed with the Internal Revenue Service (IRS) on or before January 31 following a year when liability requirements are met. FUTA tax should be computed on a quarterly basis to determine if a deposit is required for any of the first three quarters. To compute this amount, multiply that part of the first $7,000 of each employee's annual wages paid during the quarter by .006. If the tax due is more than $100, it must be deposited by the end of the next month. If the tax due is less than $100, no deposit is required, but it must be added to the next quarter(s) in determining the $100 threshold.

EXAMPLE: If the tax for each of the first two calendar quarters is $60, no deposit is required for the first quarter. However, at the end of the second quarter a deposit is required because the total undeposited tax is now more than $100 ($60 × 2 = $120). If the total for the first, second and third quarters equaled more than $100 (such as $30 + $40 + $40 = $110) then the deposit would be due. If the tax for the third quarter alone is more than $100, a deposit is required. Tax may be due over several quarters.

The IRS penalizes an employer for untimely payment of state contributions by reducing the allowable offset Employer Credit under FUTA. To ensure maximum credit, an employer should make certain that those contributions are paid in a timely manner into the state unemployment fund. A portion of the credit is lost for not paying on time.