What is the effective FUTA tax rate for the year 2018?

The correct answer is based on the Federal Unemployment Tax Act (FUTA) tax rate in 2018, which was effectively calculated as 0.6%. This rate is derived from the standard FUTA tax rate of 6.0% applied to the first $7,000 of an employee's wages. However, most employers are eligible for a tax credit of up to 5.4% for the amounts paid into state unemployment funds.

When employers successfully claim this credit against the FUTA tax, it reduces the effective rate to 0.6%. This understanding of both the standard rate and the available credits is essential for accurate payroll processing and compliance, ensuring that employers can maximize the benefits from the credits offered while also fulfilling their tax obligations.

Recognition of this effective rate is crucial for payroll professionals to calculate and report the correct unemployment taxes for their employers accurately, which ultimately impacts overall payroll expenses and compliance with federal and state employment regulations.