Your total FUTA bill for 2026 might cost less than a tank of gas. Most small employers with fewer than ten employees owe somewhere between $50 and $300 for the entire year — and yet it blindsides people every January when Form 940 comes due. Four steps. Five minutes. Here's your number.
- Gross rate is 6.0% — but you almost certainly don't pay that.
- Effective rate is 0.6% for employers current on state unemployment (SUI) taxes.
- Wage base is $7,000 per employee — you stop paying FUTA on each person once they cross that line.
- Credit reduction states pay a higher effective rate — check IRS Schedule A with your Form 940.
- Form 940 is due January 31, 2027 for tax year 2026.
The Three Numbers That Actually Matter for FUTA in 2026
FUTA — the Federal Unemployment Tax Act — is a pure employer expense. It never comes out of your employees' paychecks. You absorb this one entirely.
The gross rate is 6% on the first $7,000 each employee earns. Most employers never pay that rate. Pay your state unemployment insurance (SUI) taxes on time and you earn a 5.4% credit against the federal rate — dropping your effective cost to just 0.6%. The math: 0.6% of $7,000 is $42. That's the hard ceiling per employee in 2026.
Five employees all earning above $7,000? Your entire annual FUTA liability caps at $210. Even running small business payroll for the first time, this is one tax that won't wreck you.
One clarification: FUTA does not apply to independent contractors. Only W-2 employees count. If your team runs mostly on 1099 workers, your FUTA exposure may be near zero.
2026 Credit Reduction States: Does Your State Cost You More?
Some states borrowed from the federal unemployment trust fund during high-unemployment periods and haven't fully repaid it. Employers in those states lose a portion of the standard 5.4% credit — which pushes their effective FUTA rate above 0.6%.
The IRS announces credit reduction states each November via Schedule A of Form 940. The final 2026 list hasn't been published — expect it with the Form 940 instructions in late fall. California and the U.S. Virgin Islands were on the list for 2024. Always verify directly in the Schedule A instructions before you file.
If your state lands on the credit reduction list, you won't find out until November. The extra tax isn't due until you file Form 940 by January 31 — there's time to plan, but not to procrastinate.
| State | Credit Reduction % | Effective FUTA Rate | Max Per-Employee Cost |
|---|---|---|---|
| Standard (all states) | 0% | 0.6% | $42 |
| Example: 0.3% reduction state | 0.3% | 0.9% | $63 |
| Example: 0.6% reduction state | 0.6% | 1.2% | $84 |
| Example: 0.9% reduction state | 0.9% | 1.5% | $105 |
Check IRS Schedule A each November for the confirmed 2026 list. Even at maximum credit reduction, FUTA stays manageable — budget for it rather than get surprised at filing time.
How to Calculate and Pay Your 2026 FUTA Tax
Four steps. Meet Marcus — a contractor who opened a three-person landscaping crew this year. Here's exactly how he figures out what he owes.
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1Identify each employee's FUTA-taxable wages. Count only the first $7,000 each employee earns in 2026. Independent contractors don't count. Once someone crosses $7,000, you're done paying FUTA on them for the year — regardless of what they earn after that.
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2Multiply taxable wages × 0.6%. Use a higher rate if your state is on the credit reduction list — check Schedule A. That's your annual FUTA liability.
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3Track quarterly and deposit if you hit $500. If cumulative FUTA liability exceeds $500 in any quarter, you must deposit by the quarterly deadline: April 30, July 31, October 31, or January 31. Most micro-businesses never hit $500 in a single quarter and simply pay the full amount with Form 940. See our Q4 payroll deadlines guide for exact dates.
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4File Form 940 by January 31, 2027. This is the annual FUTA return. Pay any remaining balance with it. One form, once a year.
Worked example — Marcus's 3-person landscaping crew:
| Employee | Annual Earnings | FUTA-Taxable Wages | FUTA Owed (×0.6%) |
|---|---|---|---|
| Employee A | $50,000 | $7,000 | $42.00 |
| Employee B | $22,000 | $7,000 | $42.00 |
| Employee C | $6,000 | $6,000 | $36.00 |
| Total | — | $20,000 | $120.00 |
Marcus owes $120 for the entire year. He never hits the $500 quarterly threshold, so he pays it all with his Form 940 in January. That's it.
"Most small employers owe under $300 in FUTA for the entire year."
Just don't skip Form 940. The late-filing penalty — 5% of unpaid tax per month — will cost more than the tax itself.
The most common payroll mistake we see: forgetting to stop tracking FUTA wages once an employee hits $7,000. If your payroll software isn't capping automatically, you could overpay — or miscalculate quarterly deposits. Double-check it.
Employ a nanny or household worker? Same rules apply — FUTA kicks in if you paid them $1,000 or more in any calendar quarter. Our full household employee taxes guide for 2026 covers the nanny tax in detail.
FUTA in 2026 is 0.6% on the first $7,000 per employee — a $42 cap per person. Pay your SUI taxes on time to keep the full 5.4% credit. Check IRS Schedule A in November for credit reduction states. File Form 940 by January 31, 2027. For most micro-businesses, the total bill is two digits.
Frequently Asked Questions
Do I pay FUTA tax on part-time employees?
Yes. FUTA applies to any employee — full-time, part-time, or seasonal — once you've paid them $1,500 or more in any calendar quarter, or had at least one employee for any part of a day in 20 or more weeks during the year. The $7,000 wage base applies per person regardless of hours worked.
When is Form 940 due for tax year 2026?
Form 940 covering 2026 is due January 31, 2027. Deposit all your FUTA taxes on time throughout the year and you get a 10-day extension to February 10, 2027. Late filing costs 5% of unpaid tax per month — not worth the risk on what's usually a tiny bill.
Does FUTA apply to household employees like nannies?
Yes. Pay a household employee $1,000 or more in any calendar quarter of 2026 and you owe FUTA on the first $7,000 of their wages. Same 0.6% effective rate — $42 maximum per worker. The nanny tax rules for 2026 cover this in full.
What's the difference between FUTA and SUTA?
FUTA is the federal unemployment tax — it funds the federal layer of unemployment benefits. SUTA (State Unemployment Tax Act, also called SUI) is your state's version. You pay both. Paying SUTA on time is exactly what earns you the 5.4% FUTA credit. They're directly linked.
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FUTA in 2026 is straightforward once you know the numbers: 6% on the first $7,000 of each employee's wages, reduced to an effective 0.6% if your state unemployment taxes are current. Most small businesses owe less than $300 per worker per year.
- Wage base: $7,000 per employee — unchanged for 2026
- Gross rate: 6% — effective rate after credit: 0.6%
- Max liability per worker: $42
- Deposit threshold: $500 accumulated before a deposit is required
- Form 940 due: January 31, 2027
- Credit check: pay SUTA on time to protect your 5.4% federal offset