What percentage credit do employers receive against FUTA owed for timely payment of State unemployment taxes?

Employers receive a 5.4% credit against the Federal Unemployment Tax Act (FUTA) tax owed when they timely pay their State unemployment taxes. This is an essential aspect of the FUTA system as it helps incentivize employers to contribute to state unemployment funds. The standard federal FUTA tax rate is 6.0% on the first $7,000 of an employee's wages. However, when employers pay their state unemployment taxes on time and in full, they are allowed to reduce their FUTA tax by this percentage, effectively lowering their tax burden.

This credit is designed to encourage compliance with state unemployment tax requirements and to support state programs. If employers do not pay their state taxes timely or if their state unemployment tax rate is too low to qualify for the full credit, they may lose part or all of this credit, resulting in a higher effective FUTA tax rate. Thus, understanding the credit percentage is crucial for employers in managing their payroll taxes efficiently.