Federal Unemployment Tax Act (FUTA) Deduction Limit

Federal Unemployment Tax Act (FUTA) Deduction Limit is the extent to which tax can be reduced for the employers who pay FUTA taxes to the Federal or state government. The Federal Unemployment Tax Act system of the federal or state government provides benefits to the worker who lost the job or pays unemployment compensation to any employee who is laid off from the company. The employer pays this FUTA tax to the federal government, this tax is not deducted from the employee’s salary.

This is United States federal law and is applied to federal employers which in turn helps the federal government to pay the unemployment benefits. The Federal Unemployment Tax Act is not for the Employees, it’s only for the Employer of the company.

How is Federal Unemployment Tax Calculated ?

The employer pays this FUTA Federal unemployment taxes to the federal government and funds the government to pay their employees unemployment benefits in return. This act is only imposed on the employer if the company has paid at least $1500 to the employee in any calendar quarter in the running year or in the previous year.

What are the factors involved in calculating the Deduction Limit for Federal Unemployment Tax Act?

Each country has its own Federal Unemployment Tax Act deduction policies. According to this act, a 6.0% rate is charged to the employer but the employer can take a credit score up to 5.4% off taxable profit for paying this unemployment tax. This depends on the best credit score, then the minimum FUTA fee can also be .6%. It also depends on the time period of the company that affects the tax rate ratio. 

What is the maximum and minimum Deduction limit for Federal Unemployment Tax Act ?

Maximum FUTA employer pay per employee is $420 and the minimum is $42. The employer pays this FUTA tax till the employee base payment is $7,000. The employer or the company has the right to stop the payment of FUTA for the employee who reaches the maximum base payment limit of $7,000.

How Federal Unemployment Tax Act Deduction Limit is calculated using QuickBooks Desktop?

In Quickbooks, the FUTA rates and the employee payroll is set and details are filled in properly, this helps Quickbooks to calculate employer’s FUTA correctly and automatically stops the FUTA deduction once the limits are reached.

Federal Unemployment Tax Act Deduction Setup in Quickbooks Desktop

Step to follow to make sure the payroll is set correctly and the Federal Unemployment Tax Act (FUTA) deduction is calculated without any mistake in Quickbooks.

Set up the FUTA rate

  1. Open Quickbooks software on the desktop
  2. Select List and then choose Payroll Item List
  3. Double-click on Federal Unemployment
  4. Go on to Next, until you see Federal Unemployment Tax Rate Window
  5. Select the FUTA rate the company is eligible for and click Next.
  6. Keep clicking Next till there is a Finish button

Verify FUTA on Employee setup

  1. Open Quickbooks software on the desktop
  2. Select Employees and then go to Employee Center
  3. Select the Employee tab, double click, and enter the employee’s name
  4. Enter Payroll Information
  5. Select the Taxes button
  6. On the Federal tab, check the employment eligibility and select the checkbox for Federal Unemployment Taxes
  7. Select OK

Check employee YTD (Year-to-date) limit

  1. Select Report 
  2. Choose Employees & Payroll
  3. Select Payroll Summary
  4. Choose the Dates and select the Calendar Year
  5. Verify the employee YTD limit in the report

Note:  The limit for YTD is $420 on a 6.0% FUTA rate and $42 on a .6% FUTA rate if receiving full credit.

Hope the above details about the Federal Unemployment Tax Act (FUTA)  Deduction Limit were quite helpful to you. 

To know more about how to set up Federal Unemployment Tax Act (FUTA) deduction limit in QuickBooks and for further support on how Federal Unemployment Tax Act (FUTA) deduction is calculated using QuickBooks or for any other query related to Tax, Accounting or Bookkeeping Services for your business, please consult our team of WiZXpert ProAdvisers and Experts by dialing our toll-free Number +1-855-441-4417

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