The Federal Unemployment Tax Act (FUTA)
The Federal Unemployment Tax Act, also known as FUTA, together with state unemployment systems, provides for payments of unemployment compensation to workers who have lost their jobs. Most employers pay both a federal and state unemployment tax.
Those employers who pay their nannies $1,000 or more in any quarter are responsible for paying FUTA. This tax amounts to 6.2% of the first $7,000 earned by the household employee. This tax is only paid by you; you do not withhold any part of it from your household employee's wages. You may be able to take a credit of up to 5.4% against the FUTA tax, resulting in a net tax rate of 0.8%, if you made contributions to your state unemployment compensation system. But to do so, you generally must pay all the required contributions for the current tax year to your state unemployment fund by April 15 of the following year.
You really do not need to worry about FUTA until the end of the year. Your portion of FICA and FUTA, as well as the amounts you withheld from your household employee's pay throughout the year, are paid by you to the IRS annually by completing Schedule H, which you will file along with your personal income tax return. See "Paying the Government" for more information.
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