Federal Unemployment Tax (FUTA) Exception for Tribes

As of December 21, 2000, Indian tribes are not required to file Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return (PDF), if they elect to participate in the State Unemployment (SUTA) system. The state unemployment compensation laws must cover (with some exceptions) tribal employee services.

Tribal employers are no longer subject to the FUTA tax unless the tribe elects not to participate in the state unemployment system. This election can be made on an entity-by-entity basis.

Tribes don’t need to file Form 940 if they meet the following conditions:

  • You must be a Federally recognized tribe. Private businesses operating on tribal property don’t qualify. See Revenue Procedure 2008-55 for a list of tribes and Revenue Procedure 84-36 (PDF) for a list of political subdivisions of tribes.
  • The tribe must have complete control over the entity that operates under it; otherwise, the entity would not be exempt from the FUTA tax.
  • The tribe must participate in the state unemployment system via one of these methods:
    • Makes required payments to the state (tax contribution method)
    • Reimburses the state for unemployment claims made by former employees (reimbursement method).