Definition
A federal tax employers pay, not employees, of 6.0% on the first $7,000 of each worker's wages, usually reduced to 0.6% by a state credit.
What it means
The Federal Unemployment Tax Act funds the federal share of unemployment programs. Employers pay 6.0% on the first $7,000 paid to each employee in a year. Employers that pay their state unemployment taxes on time generally get a credit of up to 5.4%, making the net rate 0.6%, or $42 per employee. If a state has borrowed from the federal government for unemployment benefits and not repaid the loans, employers in that state receive a smaller credit, called a credit reduction, which the Department of Labor announces after November 10 each year. FUTA is reported yearly on Form 940, with deposits due quarterly once the amount owed is more than $500. It is never withheld from employees' pay.
Example
A business with five employees who each earn over $7,000 pays 0.6% x $7,000 x 5 = $210 in FUTA for the year, if its state has no credit reduction.
Illustrative numbers only. Your situation will differ.