Employers pay Federal Unemployment Tax and file Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return. Only employers pay this tax. It is not deducted from the employee's wages. For more information, refer to the Instructions for Form 940, and to Publication 15, Circular E, Employer’s Tax Guide.
Wages paid to U.S. citizens employed outside the United States are generally subject to FUTA tax if the employer is an American employer.
The term "American employer" means a person who is:
- An individual who is a resident of the United States,
- A partnership, if two-thirds or more of the partners are residents of the United States,
- A trust, if all of the trustees are residents of the United States, or
- A corporation organized under the laws of the United States or of any State or the District of Columbia.
An individual who is a citizen of the Commonwealth of Puerto Rico or the U.S. Virgin Islands (but not otherwise a citizen of the United States) shall be considered, for purposes of this section, as a citizen of the United States.
Wages paid to resident aliens employed outside the United States are generally exempt from FUTA taxes unless the compensation is received in connection with an American vessel or aircraft under certain conditions.
Wages paid to nonresident aliens by any employer for services performed within the United States are generally subject to FUTA taxes. Wages paid to nonresident aliens by any employer for services performed outside the United States are generally exempt from FUTA taxes.
Certain Compensation Exempt From FUTA Taxes
Certain types of services are exempt from FUTA taxes. Examples of exempt services include:
- Compensation paid to agricultural workers;
- Compensation paid to household employees unless the compensation exceeds $1,000 during any calendar quarter of the current year or prior year;
- Compensation paid to employees of religious, charitable, educational, or certain other tax-exempt organizations;
- Compensation paid to employees of the U.S. Government or any of its agencies;
- Compensation paid to employees of the government of any State of the United States, or any of its political subdivisions;
- Compensation paid to employees of the government of the District of Columbia, or any of its political subdivisions.
For a list of other exempt services, refer to Publication 15, Circular E, Employer’s Tax Guide.
- Federal Unemployment Tax
- Internal Revenue Code Section 3306
- Income Tax Regulation 31.3301-1 et seq.
- Publication 15, Circular E, Employer’s Tax Guide
- Publication 51, Circular A, Agricultural Workers Tax Guide
- Publication 926, Household Employer's Tax Guide
Note: This page contains one or more references to the Internal Revenue Code (IRC), Treasury Regulations, court cases, or other official tax guidance. References to these legal authorities are included for the convenience of those who would like to read the technical reference material. To access the applicable IRC sections, Treasury Regulations, or other official tax guidance, visit the Tax Code, Regulations, and Official Guidance page. To access any Tax Court case opinions issued after September 24, 1995, visit the Opinions Search page of the United States Tax Court.