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
Recent BCR Updates for 2025
As of January 1, 2025, the BCR tax has gone into effect for employers in California, New York, and Connecticut. This is a federal requirement automatically triggered when states maintain outstanding loans for an extended period.
This BCR tax impacts your production company if:
You have employees working in California, New York, or Connecticut
2025 BCR add-on rates
California: 3.7% ($259 max per employee)
New York: 1.1% ($56 max per employee)
Connecticut: 0.8% ($77 max per employee)
Wrapbook updates
Wrapbook will begin collecting this tax on all payments processed after March 3, 2025. Applicable invoices will have a separate line item showing the BCR tax.
According to the Department of Labor, the BCR tax may potentially be waived in November 2025, but this decision has not yet been made. When a decision is made, it will be communicated by the IRS.
If the BCR tax for CA, NY, and CT is waived in November, Wrapbook will automatically refund 100% of BCR tax collected in 2025.
If the BCR tax for CA, NY and CT is not waived in November, we may retroactively collect for this period for employees who worked Jan 1 - Feb 28, 2025
To learn more about the 2025 update, you can go to DOL, FUTA Credit Reductions and click Potential 2025 FUTA Credit Reductions to download and view the DOL’s official statement.