Federal Unemployment Tax Act (FUTA) Credit

Most employers who pay state unemployment insurance tax are required to pay Federal Unemployment Tax (FUTA). FUTA is collected by the Internal Revenue Service to fund administrative costs of employment services and unemployment insurance programs throughout the United States.

Employers who pay their state unemployment insurance tax receive a credit that lowers the amount of federal tax due. To receive full credit against the federal tax for a given year, an employer must pay their unemployment insurance tax by January 31 of the following year. If the state unemployment insurance tax is paid after January 31, the credit is limited to 90 percent of the maximum credit.

The federal government provides the Minnesota Unemployment Insurance (UI) Program with a list of employers who are registered to pay FUTA; this information is checked against UI Program data, and a record of the state’s unemployment insurance tax paid by each employer is returned. The federal government uses the information from the UI Program to verify that employers have claimed the correct amount of credit on their federal tax forms. The exchange of information also identifies potential federal and state non-filers. Information about potential federal non-filers is sent to the Internal Revenue Service.

When the UI Program certifies an employer’s unemployment insurance tax payment to the federal government, the amount paid for the Workforce Development Assessment is subtracted. Therefore, employers should use only the amount paid for state unemployment insurance tax and assessments when computing their federal tax credit. Do not include Workforce Development Assessment payments.