What unemployment tax you owe depends on your payroll, your state, and whether you are an employer or self-employed

Unemployment tax is a payroll tax that funds state unemployment insurance programs. The amount you owe is not a flat rate — it changes based on your total wages paid, your state's tax rate, and your industry's experience rating (a record of how many former employees have filed claims against you). If you are an employer, you pay Federal Unemployment Tax Act (FUTA) tax on the federal level and State Unemployment Tax Act (SUTA) tax to your state. If you are self-employed, you generally do not pay unemployment tax at all — that is a key difference from income tax and self-employment tax.

The calculation itself is straightforward once you know your rate and your taxable wage base. This guide walks you through the numbers for each situation and shows you where to find the rates your state publishes.

Key Takeaways

  • FUTA tax is 6% on the first $7,000 of wages per employee per year, but you receive a credit of up to 5.4% if you pay your state unemployment tax on time, making the net federal rate 0.6% in most cases.
  • SUTA tax rates vary by state and industry, ranging from roughly 0.5% to 5.4% or higher, and are based on your experience rating — how many claims your former employees have filed.
  • You calculate unemployment tax by multiplying your state's rate by the total wages you paid each employee, up to that state's annual wage base limit.
  • Self-employed people do not pay unemployment tax, but household employers and agricultural employers may have different rules depending on how much they pay.
  • You report and pay FUTA on Form 940 (or 940-SS for agricultural employers) and SUTA through your state's unemployment insurance agency.

How to calculate FUTA tax for employers

FUTA tax is the federal unemployment tax. The rate is 6% on the first $7,000 of wages you pay each employee in a calendar year. However, you receive a credit of up to 5.4% if you pay your state unemployment tax on time and in full. This means your net FUTA rate is usually 0.6% — but only if you meet the state payment important date.

The calculation is: (Number of employees) × ($7,000 wage base) × 0.6% = annual FUTA tax owed. For example, if you have three employees and pay each of them $50,000 in a year, you owe FUTA on $7,000 per employee, not the full $50,000. That is ($7,000 × 3 employees) × 0.6% = $126 in federal unemployment tax.

If you do not pay your state unemployment tax on time, you lose the credit and owe the full 6% federal rate. You report FUTA on Form 940, which you file once a year by January 31 of the following year. If you pay quarterly, you also file Form 940-V with each payment.

How to calculate SUTA tax for employers

SUTA tax is state unemployment tax, and the rate varies widely by state and by your industry. Your state's Department of Labor or unemployment insurance agency publishes a rate schedule each year, usually in October or November for the following year. Rates typically range from 0.5% to 5.4% or higher, depending on your experience rating.

Your experience rating is a record of how many of your former employees have filed unemployment claims. If you have few claims, your rate is lower. If you have many claims, your rate is higher. New employers usually start at a standard rate set by the state, often around 2.7% to 3.4%, until they have enough payroll history to receive an individual rating.

To calculate SUTA, multiply your state rate by the total wages you paid each employee, up to your state's wage base limit. The wage base limit varies by state — it might be $7,000, $9,000, $15,000, or higher. For example, if your state's rate is 2.5% and the wage base is $9,000, and you have one employee earning $40,000, you owe: $9,000 × 2.5% = $225 in state unemployment tax. The wages above $9,000 are not taxed for unemployment purposes.

You report and pay SUTA through your state's unemployment insurance agency. Most states allow you to pay quarterly or monthly, and the due date is usually the end of the month following the quarter or month worked. Check your state's website for the exact schedule and payment method.

Wage base limits by state

Each state sets its own wage base limit — the maximum amount of an employee's annual wages that are subject to SUTA tax. Once an employee's wages reach that limit in a calendar year, you stop paying SUTA on their additional earnings. This is different from FUTA, which has a fixed $7,000 wage base nationwide.

State wage bases range from $7,000 to $42,000 or more, and they change annually. Some states index their wage base to inflation, so it increases each year. Others keep it fixed. You can find your state's current wage base on your state's Department of Labor website or on the National Association of State Workforce Agencies (NASWA) website, which publishes a comparison table each year.

For example, if your state's wage base is $15,000 and an employee earns $60,000 in a year, you pay SUTA only on the first $15,000. If your state's rate is 3%, you owe $15,000 × 3% = $450 for that employee, even though they earned $60,000.

Unemployment tax for household employers

If you employ a housekeeper, nanny, gardener, or other household worker, you may owe unemployment tax depending on how much you pay them. The threshold varies by state, but federal rules require you to pay FUTA if you pay a household employee $2,700 or more in a calendar year (this amount changes annually). Some states have lower thresholds.

To calculate FUTA for household employees, use the same 0.6% net rate (or 6% if you do not pay state tax on time) on wages up to $7,000 per employee per year. For SUTA, follow your state's rules — some states require it at the same threshold as FUTA, others have different thresholds or do not require it at all.

You report household employment taxes on Schedule H (Form 1040), which you file with your personal income tax return. You do not file Form 940 for household employees.

Unemployment tax for agricultural employers

Agricultural employers have different rules. You must pay FUTA if you pay agricultural workers $20,000 or more in a calendar year, or if you employ 10 or more agricultural workers in any 20 weeks during the year. The FUTA calculation is the same — 0.6% on the first $7,000 per employee — but you file Form 940-SS instead of Form 940.

SUTA rules for agricultural workers vary by state. Some states require it at the same threshold as FUTA, others have different rules. Check your state's Department of Labor website for the specific wage threshold and rate that applies to you.

Self-employed people and unemployment tax

If you are self-employed, you do not pay unemployment tax. Unemployment insurance is designed to protect employees, not business owners. You pay self-employment tax (Social Security and Medicare), which is different, but not unemployment tax.

This is one of the few areas where self-employment is simpler than running a business with employees. You do not file Form 940 or report to your state unemployment agency. However, if you have even one employee, you must register with your state's unemployment insurance program and begin paying SUTA, even if that employee works part-time or seasonally.

Where to find your state's rates and wage base

Your state's Department of Labor or unemployment insurance agency publishes rates and wage base limits each year. Most states post them online by October or November for the following year. You can also contact your state agency directly by phone or email — they have staff who answer questions about rates and calculations.

The IRS also publishes FUTA information on its website, including the current $7,000 wage base and the credit for state taxes paid. If you use payroll software, it usually pulls your state's current rate and wage base automatically, so you do not have to look it up yourself.

Frequently Asked Questions

What happens if I do not pay unemployment tax on time?

Your state charges penalties and interest on late payments. If you do not pay SUTA on time, you also lose the federal FUTA credit, meaning you owe the full 6% federal rate instead of 0.6%. This can add up quickly, especially if you have multiple employees. Pay on your state's due date to avoid both penalties and the loss of the federal credit.

Do I have to pay unemployment tax if I have only one employee?

Yes, if you meet your state's threshold. Most states require SUTA if you have any employees at all, though a few have higher thresholds. For FUTA, you must pay if you have any employee earning $1,500 or more in a quarter, or if you have employees in 20 different weeks. Check your state's rules to be sure.

Can my experience rating go down if I have no claims?

Yes. If your former employees do not file claims, your experience rating improves over time, and your SUTA rate decreases. This is why some long-established businesses with low turnover pay much lower rates than new businesses. The improvement is automatic — you do not have to do anything except maintain a clean claims record.

What is the difference between the wage base and the tax rate?

The tax rate is the percentage you pay (for example, 2.5%). The wage base is the maximum amount of each employee's annual wages that the rate applies to (for example, $9,000). You multiply the wage base by the rate to get the tax owed per employee. Wages above the wage base are not taxed for unemployment purposes.

Do I report unemployment tax on my business income tax return?

No. FUTA and SUTA are payroll taxes, not business income taxes. You report them separately — FUTA on Form 940 and SUTA to your state. You do not deduct them from your business income on Schedule C or your corporate return, though you may deduct them as a business expense for income tax purposes.