The credit is conditional
The maximum 5.4% FUTA credit generally depends on paying state contributions in full, on time, and on qualifying FUTA wages. Credit-reduction states can increase the federal cost.
Employer unemployment tax cost
FUTA and SUTA do not use one interchangeable wage base
For 2026, FUTA generally applies at 6.0% to the first $7,000 paid to each employee before credits. The ordinary maximum state credit can reduce the net FUTA rate to 0.6%, while SUTA uses the employer's assigned state rate and the state's separate taxable wage base.
The 0.6% FUTA figure assumes full and timely state unemployment contributions on qualifying wages and no credit-reduction adjustment. Employer type, wage exclusions, successor rules, state experience ratings, and deposit timing can change the result.
Enter two different tax bases
The federal wage base remains $7,000 per employee. A state may set a much higher SUTA wage base and assign a rate that changes with the employer's experience and industry. Publication 15 specifically warns that a state wage base may differ and that state exclusions may not match FUTA exclusions.
One employee earns $65,000
At the ordinary net FUTA rate, federal cost is $7,000 times 0.6%, or $42. If the assigned SUTA rate is 2.7% and the state wage base is $15,000, state unemployment cost is $405. Reusing the FUTA base for SUTA would show only $189 and understate this example by $216 per employee.
Wage bases reset by year
Track taxable wages separately for each employee and each program. A new calendar year normally restarts the annual bases, while successor-employer rules may preserve prior wages in qualifying acquisitions.
Common budgeting errors
Do not withhold FUTA from employees, confuse an employee UI contribution with employer SUTA, apply one state rate to every entity, or omit a state wage-base update.
Official sources checked 2026-09-03: IRS Publication 15 (2026), FUTA section, IRS Instructions for Form 940, and U.S. DOL state unemployment agencies.