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Chapter 7 – FUTA explained Federal Unemployment Tax Act (FUTA) The Federal Unemployment Tax Act, with state unemployment systems, provides for payments of unemployment compensation to workers who have lost their jobs. FUTA tax is an employer tax only, and is not deducted from the employee’s wages. The tax rate for federal unemployment taxes is 6.2 percent of covered wages, which includes a 0.2 percent surtax. The rate is in effect through 2007. The taxes are assessed on the first $7,000.00 paid to covered employees each year. The law provides a credit for state unemployment taxes paid. This credit permits employers to deduct timely state contributions from federal unemployment taxes due. With the maximum credit allowed, the net federal rate for unemployment taxes is 0.8 percent through 2007, 0.6 percent in 2008 and thereafter.
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