FUTA Tax for Household Employers: How It Works and What You Owe

What Is FUTA?

FUTA stands for the Federal Unemployment Tax Act. It is a federal payroll tax that funds unemployment compensation programs administered by each state. Unlike FICA taxes (Social Security and Medicare), FUTA is paid entirely by the employer -- you do not withhold any portion from your employee's wages.

For household employers, FUTA is an often-overlooked obligation because it has a separate trigger threshold from the FICA requirement. Even if you are already withholding and paying FICA taxes, you need to determine separately whether you owe FUTA.

When Do Household Employers Owe FUTA?

You owe FUTA if you paid cash wages of $1,000 or more in any calendar quarter to household employees. Note that this threshold is different from the $2,800 annual threshold that triggers FICA obligations:

Tax	Trigger Threshold	Applies To
FICA	$2,800 in annual cash wages (per employee)	Social Security and Medicare
FUTA	$1,000 in any single quarter (all household employees combined)	Federal unemployment

It is possible to owe FUTA without owing FICA (if you pay several employees small amounts that combine to exceed $1,000 in a quarter) or to owe FICA without owing FUTA (if you pay one employee $2,800 for the year but never reach $1,000 in any single quarter).

How Much Is FUTA Tax?

The gross FUTA tax rate is 6.0% on the first $7,000 of wages paid to each employee during the calendar year. Wages above $7,000 per employee are not subject to FUTA.

At the gross rate, the maximum FUTA tax per employee would be $420 (6.0% of $7,000). However, most employers pay far less because of the state tax credit.

The 5.4% State Tax Credit

If you pay your state unemployment insurance (SUI) taxes on time and in full, you receive a credit of up to 5.4% against the 6.0% FUTA rate. This reduces the effective FUTA rate to just 0.6%, which means the maximum FUTA tax per employee is typically only $42 per year.

To receive the full credit, two conditions must be met:

1. You paid all required SUI contributions by the due date (or by the date your federal return is due, if later).
2. Your state is not a "credit reduction state." A credit reduction state is one that has borrowed from the federal unemployment trust fund and has not repaid the loan. In credit reduction states, the 5.4% credit is reduced, increasing your effective FUTA rate. The IRS publishes the list of credit reduction states annually in November.

Calculating Your FUTA Liability

Here is a straightforward example:

• You pay your nanny $35,000 during 2026.
• FUTA applies only to the first $7,000 of wages.
• Gross FUTA: $7,000 x 6.0% = $420
• State tax credit: $7,000 x 5.4% = $378
• Net FUTA owed: $420 - $378 = $42

That is the entire federal unemployment tax obligation for the year -- $42.

Reporting FUTA on Schedule H

Household employers report FUTA on Part II of Schedule H, which you attach to your personal Form 1040. Here is what Part II covers:

1. Total cash wages subject to FUTA -- the first $7,000 per employee.
2. Gross FUTA tax -- multiply line 1 by 6.0%.
3. State unemployment tax credit -- up to 5.4% of taxable wages (requires that SUI was paid on time).
4. Credit reduction adjustment -- only if you are in a credit reduction state.
5. Net FUTA tax -- gross tax minus credits.

The net FUTA amount from Part II is combined with your FICA taxes from Part I to determine your total household employment tax liability in Part III.

FUTA and State Unemployment Insurance

FUTA and SUI are separate taxes, but they are closely connected. Your state unemployment insurance registration and timely payment directly affect how much FUTA you owe. Here is why this matters:

• If you fail to register for SUI, you cannot claim the 5.4% credit, and you owe the full 6.0% rate.
• If you pay SUI late, you may lose part or all of the credit for that year.
• SUI rates vary by state and are based on your experience rating (claims history). New household employers typically pay the state's new employer rate, which ranges from roughly 1% to 4%.

Registering for state unemployment insurance promptly after hiring is essential -- not only to comply with state law but also to preserve your FUTA credit.

Common FUTA Questions

Do I pay FUTA quarterly or annually?

Household employers pay FUTA annually as part of their Schedule H filing. Unlike business employers who may need to make quarterly FUTA deposits, household employers consolidate everything into the annual return.

What if my nanny earns less than $7,000?

FUTA applies to the actual wages paid, up to $7,000. If your nanny earns $5,000 for the year, FUTA is calculated on $5,000, not $7,000. At the effective 0.6% rate, that would be just $30.

Is FUTA tax deductible?

FUTA tax paid by household employers is generally not deductible as a personal expense on your income tax return. However, if you use a dependent care flexible spending account (FSA) or claim the Child and Dependent Care Credit, the wages themselves (not the employer taxes) may factor into those calculations.

Let NannyLedger Handle the Math

FUTA calculations are straightforward once you understand the rules, but they are easy to overlook when you are busy managing a household. NannyLedger automatically tracks your wages against the $7,000 FUTA wage base, calculates your liability, and maps everything to the correct Schedule H line items at year end.

With NannyLedger, you will never miss a threshold, lose a credit, or scramble to reconstruct records at tax time. Get started today and let us handle the numbers.