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Qualify for the Federal Unemployment Tax Act (FUTA) tax credit

Article ID: 1000088
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Overview

This article explains how to qualify for the Federal Unemployment Tax Act (FUTA) tax credit.

Assumptions

You want to know how to qualify for the Federal Unemployment Insurance Act (FUTA) credit.

Expected Outcome

You will determine whether you qualify for the FUTA tax credit.

Details

The following information explains the qualifications for the FUTA tax credit:

  • Most employers qualify for the FUTA tax credit of 5.4%. The full credit reduces the FUTA tax rate from 6.2% to 0.8%.
  • If your company is subject to state unemployment tax, you qualify for the FUTA credit. The QuickBooks Assisted Payroll service (formerly QuickBooks Deluxe Payroll) will pay your state unemployment tax by the due date.
  • To qualify for the FUTA credit, you must pay all the state unemployment tax you owe for a calendar year by the due date for your Form 940.
  • If your company is exempt from state unemployment tax, but is subject to federal unemployment tax, you do not qualify for the FUTA credit.
  • If any individual employees (for example, officers or owners) are exempt from state unemployment, only their wages are excluded from the FUTA credit.

This also applies the District of Columbia, Puerto Rico, and the U.S. Virgin Islands.

Several states still have outstanding SUI federal loans. As a result, employers in these states will see an increase in their FUTA taxes that are effective retroactivly to January 1. This means that even if you paid all of your state unemployment taxes on time, you will now owe the federal government additional money to make up for the new, retroactive rate change.

See the IRS website for more information.

For information about the 2011 FUTA credit see 2011 Federal Unemployment Tax Act (FUTA) Credit Reductions.

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