FUE tax Law and Legal Definition

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. An employer is liable to pay this tax, which finances both federal and state unemployment programs, if that employer has:

Employed one or more individuals who worked at least 20 (not necessarily consecutive) calendar weeks during the current or preceding tax year or

Paid at least $1,500 in employee wages during any quarter. If an employee wage pool exceeds $1,500 in November of a given year, employer is required to pay federal unemployment taxes for that entire year - not just for November and December - as well as for the next year.

The federal unemployment tax rate is 6.2 percent. However, if federal unemployment taxes are paid early and state unemployment taxes are send on time, a claim of 5.4 percent credit on federal unemployment return may be made. Therefore, federal unemployment tax rate will fall to 0.8 percent.