How to Calculate FUTA and SUTA taxes

Calculate FUTA tax by multiplying the first $7,000 an employee earns by 6.2 percent. 6.2 percent X $7,000 = $434. This is the amount of FUTA tax that an employer must pay for the employee making at least $7,000 must pay each year.

By contributing SUTA taxes for your employees for their state unemployment contributions. As an employer you can take a credit of up to 5.4 percent of their taxable wages against their FUTA contribution. Employers who make the maximum permissible SUTA contributions are left with an effective FUTA tax rate of 0.8 percent, or $56 per year. However, your state has to be in good standing with the federal government and the employee must pay the SUTA tax in a timely manner to get the credit.

Federal Unemployment Rate Change effective July 1, 2011
Congress has announced that the 0.2% FUTA surcharge will not be extended before June 30, 2011. Employers have been required to pay a flat rate of 6.2% on the first $7,000.00 of each employee's annual wages for FUTA. The 6.2% FUTA rate included a temporary 0.2% surcharge that was first added in the 1970's. The FUTA rate will be reduced from 6.2% to 6.0% effective July 1, 2011. Employers will still receive the 5.4% credit for paying state unemployment on time, reducing the FUTA rate to .6% on wages paid up to the annual FUTA limit of $7,000.00. The IRS is currently revising Form 940 (Employer's Annual Federal Unemployment (FUTA) Tax Return) to accommodate the two different FUTA rates for calendar year 2011.

Calculate the SUTA tax by finding the wage base in your state. New employees are assigned an initial lower rate of withholding, the exact rate varies from state to state, for the first year or two. Then the withholding is reduced if the employee has not drawn unemployment benefits or increased if benefits have been collected. In most cases, the SUTA tax rate is ultimately determined by the number of unemployment claims the state has received from taxpayers who formerly worked for you. The rate usually starts at the highest level and decreases if few of your ex-employees file for benefits.

Employee Deductions for Unemployment Taxes
A few states (currently Alaska, New Jersey, and Pennsylvania) require employers within the state to take unemployment tax deductions from employees. If you have a business presence in one or more of those states, check on this requirement.