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What is FUTA Tax?

Federal unemployment tax act, federal payroll tax, unemployment benefits, FUTA, tax rates, state programs

Isabelle Talkington avatar
Written by Isabelle Talkington
Updated over 2 months ago

As a farmer or rancher, you're not just managing crops and livestock—you’re also managing payroll, taxes, and other financial responsibilities. One of those important obligations is the Federal Unemployment Tax Act (FUTA) tax, which helps fund unemployment benefits for workers across the country. While FUTA may not be top of mind when you think about running your operation, it’s important to understand how it affects your farm’s bottom line.

Here’s what you need to know about FUTA tax:

1. It’s Your Responsibility as an Employer:
If you have hired hands or employees working on your farm, you’re responsible for paying the FUTA tax. This tax doesn’t come out of your employees’ wages—it’s an extra payroll cost that falls on your shoulders as the employer. Like other payroll taxes (think Social Security and Medicare), FUTA ensures workers have financial support if they lose their jobs.

2. FUTA Helps Fund Unemployment Benefits:
The FUTA tax you pay goes into federal unemployment funds, which provide financial support to eligible workers who lose their jobs. State agencies manage unemployment programs, and your payments also contribute to these through state-level taxes, known as State Unemployment Tax Act (SUTA) taxes.

3. How Much You Pay:
The standard FUTA tax rate is 6% on the first $7,000 of each employee’s wages. But, if you pay your state unemployment (SUTA) taxes on time, you can qualify for a tax credit that reduces this rate to 0.6%. However, if your state is labeled a “credit reduction state,” your effective FUTA tax rate could go up.

4. Reporting and Paying FUTA:
To stay compliant, you’ll need to file IRS Form 940 each year to report your FUTA tax liability. This form helps you calculate how much you owe, based on the wages you’ve paid your workers. The deadline is typically January 31st of the following year. If your FUTA tax liability exceeds $500, you’re required to pay electronically through the Electronic Federal Tax Payment System (EFTPS).

5. Thresholds for Agricultural Employers:
For agricultural employers, FUTA tax applies if you’ve paid $1,500 or more in wages in any calendar quarter during the current or prior year. You’re also liable if you had at least one employee working during some part of a day for 20 or more weeks in a calendar year. This includes part-time workers and seasonal help. Even if you only employ a few workers, it’s important to know where you stand in terms of these thresholds.

6. Don’t Forget About State Unemployment Taxes (SUTA):
On top of FUTA, you also need to pay state unemployment taxes (SUTA) to keep your state unemployment insurance program running. Each state sets its own rates, which may vary based on your farm’s employment history and state regulations.

Stay Compliant and Avoid Penalties
Managing employment taxes like FUTA may seem complicated, but staying on top of it is key to avoiding penalties and interest charges. Farm management software like FarmRaise Payroll can help you keep track of payroll, calculate your tax liabilities, and ensure everything is filed and paid on time. This way, you can focus on what matters most—keeping your farm running smoothly and sustainably.

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