Employment Taxes - Federal Unemployment Tax (FUTA)
Federal Unemployment Tax
Most employers who pay Arizona state unemployment tax are also required to pay the Federal Unemployment Tax (FUTA). The annual FUTA tax you pay is used to fund the administrative costs of the Unemployment Insurance program while your Arizona state unemployment tax is used solely for the payment of benefits to unemployed workers.
The FUTA tax rate was 6.2% until July 1, 2011, when it decreased to 6.0%. FUTA tax is required on the first $7,000 in wages paid to each worker in a calendar year and is paid to the Internal Revenue Service in January of the following year.
When you pay your state unemployment taxes on time, you receive a tax credit of 5.4% to reduce your FUTA tax regardless of your Arizona unemployment tax rate. The credit is equal to your actual tax rate, plus the difference between that percent and 5.4%. This means that Arizona employers who pay their state taxes timely pay a net FUTA tax of 0.8% on taxable wages paid prior to July 1, 2011 and a net FUTA tax of 0.6% on taxable wages paid after June 30, 2011. For example:
If your Arizona tax rate is 2.7%, you will receive a tax credit of 5.4% to reduce the FUTA tax even though your state tax rate is less than 5.4%:
| 6/30/2011 and Prior | 7/1/2011 and After | ||
|---|---|---|---|
| FUTA Tax Rate | 6.2% | 6.0% | |
| Credit | 5.4% | 5.4% | (2.7% state tax credit plus an additional 2.7% credit) |
| Net FUTA Tax Rate | 0.8% | 0.6%* |
In order to receive the full FUTA tax credit, you must pay your state unemployment taxes on time. If you pay your state taxes late, you will receive only 90% of the allowable credit. Visit the Internal Revenue Service Web site for more information on FUTA and other federal taxes.
*NOTE: The credit Arizona employers receive for paying their state unemployment taxes on wages paid in 2012 will be reduced by 0.3% due to circumstances fully explained on the Special Assessment information page. The effect of this is that their FUTA tax rate for 2012 will increase by 0.3%, so if 2012 Arizona taxes are paid on time, the net FUTA tax rate for 2012 will be 0.9%.
NEW: The IRS has issued proposed regulations (REG 153340-09) that would eliminate the option of making federal tax deposits by paper coupon. Taxpayers would be required to use the Electronic Federal Tax Payment System (EFTPS) to pay FUTA and other federal taxes starting in 2011. Changes to the deposit regulations are necessary because the paper coupon system will no longer be maintained by the Treasury Department after December 31, 2010. For more information, visit the Internal Revenue Service Web site.
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