2021 FUTA Tax Rate & Wage Base
The 2021 FUTA Tax Rate & Wage Base is $7,000.
Effective 2021-01-01Source: 2021 Instructions for Form 940 (IRS)Verified 2026-09-02
Compared with 2020
Every figure on this page is unchanged from 2020.
| Item | 2020 | 2021 | Change |
|---|---|---|---|
| Wage base | $7,000 | $7,000 | +$0 (+0.0%) |
Who it applies to
Employers who are required to file Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return.
What changed this year, and why
For 2021, the FUTA wage base remains $7,000 per employee, unchanged from 2020.
Common questions
- What is the FUTA wage base?
- The FUTA wage base for 2021 is $7,000 per employee. Only the first $7,000 of wages paid to each employee in a calendar year is subject to the federal unemployment tax.
The $1,500 quarter test and the 20 week test
An employer must file Form 940 for 2021 if it meets either of two thresholds during 2020 or 2021. The first test looks at wages: if the employer paid $1,500 or more in wages to employees in any single calendar quarter, filing is required. The second test looks at duration: if the employer had one or more employees for at least some part of a day in any 20 or more different weeks, filing is also required. When counting weeks for this test, the employer must include all full-time, part-time, and temporary employees, but partners in a partnership are excluded. Meeting either test is enough to trigger the filing obligation; an employer does not need to satisfy both. The wage base for 2021 is $7,000 per employee.
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 2020 or 2021? • Did you have one or more employees for at least some part of a day in any 20 or more different weeks in 2020 or 20 or more different weeks in 2021?
2021 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 2021 is 6.0%, applied only to the first $7,000 paid to each employee during the calendar year after subtracting any payments exempt from FUTA tax. Most employers, however, do not pay the full 6.0%. They receive a maximum credit of up to 5.4% against the FUTA tax for state unemployment taxes paid. The net effect is that the employer pays a small remaining fraction of the 6.0% rate as actual federal tax, since the 5.4% credit offsets the bulk of the liability. The $7,000 wage base means that once an employee has received $7,000 in FUTA-taxable wages in a calendar year, no additional FUTA tax is owed on that employee's wages for the rest of the year. Employers must figure their tax liability each quarter by adding the first $7,000 of each employee's annual wages paid during that quarter and multiplying that amount by the applicable rate.
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% (0.060) for 2021. Most employers receive a maximum credit of up to 5.4% (0.054) against this FUTA tax. Every quarter, you must figure how much of the first $7,000 of each employee's annual wages you paid during that quarter.
2021 Instructions for Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return (IRS)
Why employers in some states pay more
A credit reduction state is a state that has not repaid money it borrowed from the federal government to pay unemployment benefits. The Department of Labor determines which states fall into this category each year. Employers who pay wages subject to the unemployment tax laws of a credit reduction state must pay additional federal unemployment tax when filing Form 940 because their state tax credit is reduced. For 2021, the U.S. Virgin Islands (USVI) is the only credit reduction state. If an employer paid wages subject to the unemployment compensation laws of the USVI, the employer's credit against federal unemployment tax is reduced based on the USVI's credit reduction rate. Employers use Schedule A (Form 940) to figure the credit reduction amount. In years when credit reduction states exist, employers must include the additional liabilities owed for credit reduction with their 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.
2021 Instructions for Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return (IRS)
Household employers are tested separately
Household employers are tested under a separate, higher threshold than other employers. A household employer must pay FUTA tax on wages paid to household employees only if the employer paid cash wages of $1,000 or more in any calendar quarter in 2020 or 2021. This is a different test from the one applied to general business employers. A household employee is someone who performs household work in a private home, a local college club, or a local chapter of a college fraternity or sorority. Generally, household employers file Schedule H (Form 1040) instead of Form 940. However, if the employer has other employees in addition to household employees, they can choose to include FUTA taxes for household employees on Form 940 instead of filing Schedule H. The $1,000 quarterly cash-wage threshold applies solely to household employees and does not combine with wages paid to other workers.
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 2020 or 2021. A household employee performs household work in a: • Private home, • Local college club, or • Local chapter of a college fraternity or sorority.
2021 Instructions for Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return (IRS)
The $500 rule that decides when you deposit
Although Form 940 covers a full calendar year, employers may need to deposit FUTA tax before filing the return. The deposit threshold is $500. If an employer's FUTA tax is more than $500 for the calendar year, the employer must deposit at least one quarterly payment. The timing of deposits is determined by quarterly tax liability. If FUTA tax is $500 or less in a quarter, the amount is carried over to the next quarter. The carryover continues until the cumulative undeposited tax exceeds $500, at which point the employer must deposit by the last day of the month after the end of that quarter. For the fourth quarter, if the FUTA tax plus any undeposited amounts from earlier quarters is more than $500, the entire amount must be deposited by January 31, 2022. If the fourth quarter total is $500 or less, the employer may either deposit it or pay it with the Form 940 return by January 31, 2022.
Although Form 940 covers a calendar year, you may have to deposit your FUTA tax before you file your return. 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. Continue carrying your tax liability over until your cumulative tax is more than $500.
2021 Instructions for Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return (IRS)
Deposits have to be electronic, not mailed
The IRS requires every FUTA tax deposit to be made electronically. Mailing a check or money order is not accepted. The electronic funds transfer (EFT) is normally made through the Electronic Federal Tax Payment System (EFTPS), a free service run by the Department of the Treasury. An employer that does not want to use EFTPS directly may have a tax professional, a financial institution, a payroll service, or another trusted third party make the electronic deposit on its behalf, though those parties may charge a fee. As an alternative, the employer's financial institution can initiate a same-day wire payment. Further details on making federal tax deposits are in IRS Publication 966.
You must use EFT to make all federal tax deposits. Generally, an EFT is made using EFTPS. If you don't want to use EFTPS, you can arrange for your tax professional, financial institution, payroll service, or other trusted third party to make electronic deposits on your behalf. Also, you may arrange for your financial institution to initiate a same-day wire payment on your behalf.
2021 Instructions for Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return (IRS)
An overpayment is not lost: refund it or apply it forward
An employer that has paid more FUTA tax than is owed for 2021 does not simply lose the excess. On line 15 of Form 940, the employer can choose between having the IRS apply the overpayment to the next year's return or having the IRS send a refund. Only one box may be checked. If neither box is checked, or if both are checked, the IRS will generally apply the overpayment to the next return by default. Regardless of the choice made, the IRS may also apply the overpayment against any past-due tax account that appears in its records under the employer's EIN. If the overpayment is less than $1, the IRS will refund it or apply it forward only if the employer requests it in writing.
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. Check the appropriate box on line 15 to tell us which option you select. Check only one box on line 15. If you don’t check either box or if you check both boxes, we will generally apply the overpayment to your next return. Regardless of any box you check or don’t check, we may apply your overpayment to any past due tax account that is shown in our records under your EIN. If line 15 is less than $1, we will send you a refund or apply it to your next return only if you ask for it in writing.
2021 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
Every Form 940 must carry the employer identification number (EIN) that the IRS assigned to the business. Using a social security number (SSN) or an individual taxpayer identification number (ITIN) in place of an EIN is not permitted. Filing the return with an incorrect EIN, or using the EIN that belongs to someone else's business, can lead to penalties as well as delays in processing the return. If a valid EIN is not provided, the return will not be accepted. Employers should double-check that the number on the form matches the IRS records exactly before filing.
If a valid EIN isn't provided, the return won't be accepted. This may result in penalties. Always be sure the EIN on the form you file exactly matches the EIN that the IRS assigned to your business. Don't use a social security number (SSN) or individual taxpayer identification number (ITIN) on forms that ask for an EIN. 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.
2021 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.
2021 Instructions for Form 940 (IRS)
- Wage base
Only the first $7,000 you paid to each employee in a calendar year, after subtracting any payments exempt from FUTA tax, is subject to FUTA tax. This $7,000 is called the FUTA wage base.