FUTA: What Is It And What Are The 2021 Rates?

December 2, 2021 Laura A. Barton

Does dealing with taxes ever feel like living in a world of acronyms? We think so, too, but don't worry, we'll break this one down for you.

FUTA stands for Federal Unemployment Tax Act, and if you're an employer in the United States, you'll want to keep this one on your radar. It's an employer-paid federal tax that goes toward payments of unemployment compensation for workers who've lost jobs. To start, the rate is six percent (6%), but, in most cases, employers can receive a credit when filing Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return. The credit is 5.4 percent (5.4%), leaving a net FUTA tax rate of 0.6 percent (0.6%).

Pretty straightforward, right?

Know the difference between US income tax and payroll tax to keep your books in order.

What are FUTA credit reduction states?

Instances where the net 0.6 percent (0.6%) rate wouldn't apply to a state is if the state has taken out a Federal Unemployment Trust Fund loan and was unable to pay it back within the given timeframe. These are federal government loans that a state can use if it doesn't have the funds to pay Unemployment Insurance (UI) benefits for its residents.

When a state has this kind of loan, the amount of the credit on the FUTA tax shifts, reducing by a rate determined by the Department of Labor (DOL) until the loan is repaid. The credit reduction rate starts at 0.3 percent (0.3%), and an additional 0.3 percent (0.3%) is added each year there's still money owed.

Not only that, if there's still a balance on the loan in year three and five, the government may reduce the credit even more.

All in all, this is why they're referred to as credit reduction states.

How does a FUTA credit reduction state affect employers? (And Year-End?)

All right, that was a lot of state government-level information, but how does this impact you as an employer?

Remember, this is an employer-paid tax, and it's up to you to know if your state is a FUTA credit reduction state. Keeping an eye on whether your state falls under this category can save you from stress and headaches when filing your Form 940 with the IRS.

FUTA credit reduction states.

The DOL announced the new rates each year, typically after November 10, which is the deadline.

For the 2021 tax year, the US Virgin Islands (USVI) are once again a FUTA credit reduction state. Employers in this state will have to be mindful of the credit reduction rates that apply when filling out Form 940. The rate for 2021 is 3.3 percent (3.3%) as per the DOL.

No other states are currently FUTA credit reduction states.

Knowing these kinds of tax situations and rates are just another way to keep year-end running smoothly for your small business.

We're here to help.

The best way to reach us is by submitting a ticket from within Wagepoint. You can also reach us by email at us_support@wagepoint.com.

Want to learn more?

Access other important year-end goodies in your Year-End Survival KIT:

Disclaimer: This article is intended to be informational and does not replace the need for working with an accountant, bookkeeper or other financial professional. While every care has been taken to ensure the accuracy of this content, the relevant laws undergo constant revision. It is a best practice to stay informed on these topics and to consult with experienced professionals. Any errors or inaccuracies brought to our attention will be corrected as quickly as possible.

About the Author

Laura is a Content Specialist with Wagepoint who has a passion for telling stories in both the fiction and non-fiction realms. She loves narratives that explore human nature and has a particular interest in mental health. Although writing takes up a good chunk of her time, she can otherwise be found immersing herself in social media, reading, or binge-watching videos online.
Follow on Linkedin Visit Website More Content by Laura A. Barton

Ways To Fight The Winter Blues

Use these tips to combat the winter blues and help keep everyone on your team mentally and physically healt...

The 2021 Year-End Checklist For US Small Businesses

Ensure your year-end goes without a hitch with Wagepoint's 2021 year-end checklist for US small businesses....

Welcome to the Wagepoint Blog!

FUTA: What Is It And What Are The 2021 Rates?

What are FUTA credit reduction states?

How does a FUTA credit reduction state affect employers? (And Year-End?)

FUTA credit reduction states.

We're here to help.

Want to learn more?

About the Author

Previous Article

Next Article

FUTA: What Is It And What Are The 2021 Rates?

What are FUTA credit reduction states?

How does a FUTA credit reduction state affect employers? (And Year-End?)

FUTA credit reduction states.

We're here to help.

Want to learn more?

About the Author

Previous Article

Next Article

Other content in this Stream

Wagepoint’s automated payroll features makes tasks easy and manages your growing team all in one place.

This article highlights dates and deadlines US small business owners, accountants or bookkeepers need to consider for the W2 and 1099 Tax Forms.

Stay on top of public holidays and other important American small business payroll deadlines with our friendly 2022 payroll calendar.

This article highlights helpful resources and publications to help US small business owners, accountants or bookkeepers ensure a smooth year-end.

This article focuses on 2022 tax updates, 401K plans, Workers' Comp and COVID wages for US small business owners, accountants and bookkeepers.

Get a breakdown of the year-end W2 and 1099 tax forms that all employers are responsible for. ​Whether you need to issue Forms W-2 or 1099-MISC, they must accurately represent the payroll year.

Purpose CPA knew what they wanted with a payroll software, and finding Wagepoint has allowed them to save time and take on a larger advisory role. Here's how.

Protect your mental health and happiness during payroll year-end with these tips shared by a few Wagepoint team members!

Follow our 8 easy steps to ensure your payroll year-end is smoother than a baby's bottom! Wagepoint wants to help your business minimize discrepancies and avoid fines.

This article highlights wire transfer requirements for US small business owners, accountants or bookkeepers with larger payrolls.

Wagepoint is about delivering treats, not tricks — we promise! This guide for small business owners will help with avoiding payroll errors to hit the ground running for year-end.

Use these tips to combat the winter blues and help keep everyone on your team mentally and physically healthy and productive during the winter months.

Ensure your year-end goes without a hitch with Wagepoint's 2021 year-end checklist for US small businesses. This also applies to US accountants and bookkeepers.

This blog highlights key holiday payroll dates and timelines that US small business owners, accountants and bookkeepers should consider.

Now, more than ever, it's important to invest in your mental health, especially if you're a small business owner. Here are five ways you can improve your well-being right now.

Get a breakdown of the year-end W2 and 1099 tax forms that all employers are responsible for. Whether you need to issue Forms W-2 or 1099-MISC, they must accurately represent the payroll year.