Federal Unemployment Tax Act (FUTA)
FUTA is a federal law that requires employers to pay a tax on the first $7,000 of each employee's wages. This tax helps fund the federal unemployment insurance program, which provides benefits to workers who lose their jobs.
The nominal tax rate is 6.0%, but employers typically receive a credit of up to 5.4% for state unemployment tax contributions
This lowers the effective rate to about 0.6% per employee, or a maximum of $42 per employee annually
FUTA taxes help fund state workforce agencies and unemployment benefit programs
As an employer, you're responsible for paying this tax - it is not withheld from employee wages
For federal government information about FUTA, see IRS, Federal Unemployment Tax
Benefit Cost Rate (BCR)
BCR is a supplemental tax that gets added to the FUTA tax in specific circumstances. When a state has outstanding federal unemployment loans for five or more consecutive years, the BCR is applied as an additional tax rate.
The BCR is triggered when states carry federal unemployment insurance loan balances for five or more consecutive years
The BCR increases the FUTA tax rate to encourage timely repayment of federal advances
This is a mandatory tax that all employers must pay - it's not optional
Individual companies cannot be exempted from this tax
All payroll providers are required to collect this tax on all qualifying wages in the affected states
For federal government information about BCR, see DOL, FUTA Credit Reduction
BCR Updates for 2026
Effective January 1, 2026, BCR tax of 3.7% will be applied to wages for California-based workers, up to the FUTA wage base of $7,000 per year. When applicable, BCR tax will be itemized on the payroll invoice.
This BCR tax impacts your production company if:
You have employees working in California in 2026
Potential Waiver & Refund
As with prior tax years, the U.S Department of Labor may waive BCR tax for the State of California. In the event a waiver is provided, Wrapbook will automatically refund BCR taxes collected in 2026.