What Are FUI Taxes?

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Federal unemployment insurance (FUI) is unemployment insurance financed through federal employer payroll taxes. The program funds state unemployment programs, enabling those programs to provide unemployment benefits to eligible workers. Employers are typically required to pay FUI taxes.

Criteria

Employees must pay FUI taxes if their employees’ total wages equal $1,500 or more during any quarter of the year. Further, they must pay FUI taxes if they employed one worker for 20 weeks of the year.

Payment

Under the Federal Unemployment Tax Act (FUTA), the IRS has the authority to collect FUI taxes from employers.

 

FUTA's Role

FUTA takes care of the costs involved in implementing the unemployment insurance and employment service programs in every state.

 

Tax Rate

For 2012 employers must pay a minimum of 6.0 percent of taxable wages–the first $7,000 of each employee’s paid wages. Employers must pay the tax yearly using IRS form 940.

 

Employee Withholding

The employer cannot withhold FUI taxes from his employees’ paychecks because only the employer is required to pay FUI taxes.