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FUTA means Federal Unemployment Tax Act. It created a tax paid only by employers.

Congress thought it was unfair that some states offered unemployment insurance and some did not. As part of the New Deal, they passed the Federal Unemployment Tax Act. Today all 50 states and the District of Columbia offer unemployment insurance. For those companies who are up to date with their state unemployment insurance, FUTA tax is .8% of the first $7,000 of each employee’s wages. None of this money goes to unemployed people. It is used to man phone lines and web sites, and provide other administrative functions. If an employer is not up to date with his state unemployment taxes, the FUTA rate increases to 6.2%.

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