2020 FUTA Tax Rate & Wage Base
The 2020 FUTA Tax Rate & Wage Base is $7,000.
Effective 2020-01-01Source: 2020 Instructions for Form 940 (IRS)Verified 2026-09-02
Compared with 2019
Every figure on this page is unchanged from 2019.
| Item | 2019 | 2020 | Change |
|---|---|---|---|
| Wage base | $7,000 | $7,000 | +$0 (+0.0%) |
Who it applies to
Employers who pay wages subject to the Federal Unemployment Tax Act (FUTA)
What changed this year, and why
The FUTA wage base for 2020
Common questions
- What is the FUTA wage base for 2020?
- The FUTA wage base for 2020 is $7,000. The FUTA tax applies to the first $7,000 an employer pays to each employee during the calendar year, after subtracting any payments exempt from FUTA tax.
- Does the FUTA wage base apply per employee or in total?
- The $7,000 wage base applies to each employee individually. An employer pays FUTA tax on up to $7,000 of wages paid to each employee during the year.
The $1,500 quarter test and the 20 week test
Employers must file Form 940 for 2020 if they meet either of two tests. The first test looks at wages: if you paid $1,500 or more to employees in any single calendar quarter during 2019 or 2020, you must file. The second test looks at duration: if you had one or more employees for at least some part of a day in any 20 or more different weeks during 2019 or 2020, you must file. You count all full-time, part-time, and temporary employees for the 20-week test, but if your business is a partnership, you don't count its partners. Meeting either test triggers the filing requirement - you don't need to meet both. If your business was sold or transferred during the year, each employer who answered yes to at least one question must file Form 940. The FUTA tax applies to the first $7,000 you pay to each employee during the calendar year after subtracting any payments exempt from FUTA tax.
Who Must File Form 940? Except as noted below, if you answer “Yes” to either one of these questions, you must file Form 940. • Did you pay wages of $1,500 or more to employees in any calendar quarter during 2019 or 2020? • Did you have one or more employees for at least some part of a day in any 20 or more different weeks in 2019 or 20 or more different weeks in 2020?
2020 Instructions for Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return (IRS)
The rate charged on the wage base, and the state credit against it
The FUTA tax rate for 2020 is 6.0% on the first $7,000 of wages paid to each employee during the calendar year. Most employers receive a maximum credit of up to 5.4% against this FUTA tax for state unemployment taxes they pay. This means the net federal rate is the 6.0% rate minus whatever state credit the employer qualifies for, which can be as much as 5.4%. The wage base of $7,000 applies per employee per calendar year after subtracting any payments exempt from FUTA tax. Employers must determine how much of the first $7,000 of each employee's wages was paid during each quarter and apply the 6.0% rate (less the available credit) to figure their quarterly FUTA tax liability.
You owe FUTA tax on the first $7,000 you pay to each employee during the calendar year after subtracting any payments exempt from FUTA tax. The FUTA tax is 6.0%TIP (0.060) for 2020. Most employers receive a maximum credit of up to 5.4% (0.054) against this FUTA tax.
2020 Instructions for Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return (IRS)
Why employers in some states pay more
Employers in credit reduction states may owe additional FUTA tax beyond the normal rate. A credit reduction state is one that hasn't repaid money borrowed from the federal government to pay unemployment benefits. The Department of Labor determines which states have this status. If you pay wages subject to the unemployment tax laws of a credit reduction state, your credit against federal unemployment tax is reduced, meaning you pay more FUTA tax when filing Form 940. For 2020, the U.S. Virgin Islands (USVI) is the only credit reduction state. If you paid wages subject to USVI unemployment tax laws, you must use Schedule A (Form 940) to calculate the credit reduction and include the additional liability with your fourth quarter deposit.
A state that hasn't repaid money it borrowed from the federal government to pay unemployment benefits is a “credit reduction state.” The Department of Labor determines these states. If an employer pays wages that are subject to the unemployment tax laws of a credit reduction state, that employer must pay additional federal unemployment tax when filing its Form 940.
2020 Instructions for Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return (IRS)
Household employers are tested separately
Household employers are subject to a separate FUTA filing threshold. You must pay FUTA tax on wages paid to household employees only if you paid cash wages of $1,000 or more in any calendar quarter in 2019 or 2020. This is a lower cash-wage test than the one that applies to other employers. A household employee performs household work in a private home, local college club, or local chapter of a college fraternity or sorority. Generally, employers of household employees file Schedule H (Form 1040) instead of Form 940. However, if you have other employees in addition to household employees, you can choose to include the FUTA taxes for your household employees on Form 940. Once you meet the filing threshold, the FUTA wage base of $7,000 applies to each household employee's wages for the calendar year.
If you’re a household employer, you must pay FUTA tax on wages that you paid to your household employees only if you paid cash wages of $1,000 or more in any calendar quarter in 2019 or 2020.
2020 Instructions for Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return (IRS)
The $500 rule that decides when you deposit
Even though Form 940 is filed annually, employers may need to deposit their FUTA tax quarterly. If your total FUTA tax for the calendar year exceeds $500, you must deposit at least one quarterly payment. You determine deposit timing based on quarterly tax liability: if your FUTA tax is $500 or less in a quarter, you carry it forward to the next quarter. You continue carrying the liability forward until your cumulative unpaid tax exceeds $500, at which point you must deposit by the last day of the month following the quarter's end. If your fourth quarter tax plus any undeposited amounts from earlier quarters is more than $500, you must deposit the entire amount by February 1. If it is $500 or less, you may either deposit it or pay it with your Form 940.
If your FUTA tax is more than $500 for the calendar year, you must deposit at least one quarterly payment. You must determine when to deposit your tax based on the amount of your quarterly tax liability. If your FUTA tax is $500 or less in a quarter, carry it over to the next quarter.
2020 Instructions for Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return (IRS)
Deposits have to be electronic, not mailed
The IRS requires that all federal tax deposits for FUTA be made electronically through the Electronic Federal Tax Payment System (EFTPS). You cannot mail a check or money order to satisfy these deposits. If you prefer not to manage EFTPS yourself, you may authorize a tax professional, financial institution, payroll service, or other trusted third party to make the electronic deposits on your behalf. Alternatively, you can arrange with your financial institution to initiate a same-day wire payment. EFTPS itself is a free service provided by the Department of the Treasury. This electronic deposit requirement applies to every FUTA tax payment you make during the year, regardless of the amount, so you must set up access to EFTPS or designate a qualified third party before your first deposit is due.
You Must Deposit Your FUTA Tax Using EFT You must use EFT to make all federal tax deposits.
2020 Instructions for Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return (IRS)
An overpayment is not lost: refund it or apply it forward
If you deposited more FUTA tax than you owe for the year, the overpayment is not lost. You can choose to have the IRS apply the refund to your next year's FUTA return, or you can request that the IRS send you a refund. You indicate your choice by checking the appropriate box on line 15 of Form 940, and you may check only one box. If you fail to check either box, or if you check both, the IRS will generally apply the overpayment to your next return by default. Additionally, regardless of what box you check, the IRS may apply your overpayment to any past-due tax account that appears in its records under your EIN.
If you deposited more than the FUTA tax due for the year, you may choose to have us either: • Apply the refund to your next return, or • Send you a refund.
2020 Instructions for Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return (IRS)
Filing with the wrong EIN can cost you penalties, not just a processing delay
When filing Form 940, the EIN on the form must exactly match the EIN that the IRS assigned to your business. You cannot use a Social Security Number (SSN) or an Individual Taxpayer Identification Number (ITIN) in place of an EIN on forms that ask for one. Filing with an incorrect EIN, or using the EIN that belongs to another business, may result in penalties and processing delays. If a valid EIN is not provided, the return will not be accepted at all. It is therefore essential to verify that you are using the correct EIN before submitting your FUTA return, as errors can trigger both financial penalties and significant delays in the processing of your filing.
Filing a Form 940 with an incorrect EIN or using the EIN of another's business may result in penalties and delays in processing your return.
2020 Instructions for Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return (IRS)
How each figure was verified
Each number below was read from a stored copy of the document named beside it, and checked to occur word for word in the quoted sentence. The digest is of that stored text.
2020 Instructions for Form 940 (IRS)
- Wage base
This $7,000 is called the FUTA wage base.