FUTA (Federal Unemployment Tax)
FUTA is the federal unemployment tax: 6.0 percent on the first $7,000 of each employee’s wages, reduced to 0.6 percent for employers paying state unemployment tax on time.
FUTA appears in PEO invoice reconciliations and can be affected by a change in the entity treated as the employer for federal tax purposes. A change in payroll software alone does not restart the wage base when the underlying employer remains the same. Analyze a PEO transition under the applicable payer, CPEO, and successor-employer rules.
Employers in "credit reduction" states (states with outstanding federal unemployment loans) pay a higher effective FUTA rate. Confirm that the PEO tracks the applicable status and reflects the adjustment correctly on invoices.