How to Calculate FUTA, SUTA, and Workers' Compensation Contributions

Understanding the Three Key Payroll Taxes

FUTA, SUTA, and workers' compensation are three distinct payroll obligations that employers must budget for. FUTA (Federal Unemployment Tax Act) provides federal unemployment benefits. SUTA (State Unemployment Tax Act) funds state‑level unemployment insurance. Workers' compensation covers medical care and lost wages for job‑related injuries. Each has its own rate, wage base, and filing schedule, and they are calculated separately before adding to the payroll budget.

FUTA: Federal Unemployment Tax

Rate and Wage Base

For 2026, the FUTA tax rate is 0.6% on the first $7,650 of each employee's wages. Employers who pay state unemployment taxes on time may receive a credit of up to 5.4%, reducing the effective FUTA rate to 0.0% or 0.1% in rare cases.

Calculation Example

• Employee earns $10,000 in 2026.
• Taxable wages = min(10,000, 7,650) = $7,650.
• FUTA tax = 7,650 × 0.006 = $45.90.

Filing

Form 940 is filed annually by March 31, with quarterly deposits if total tax exceeds $500.

SUTA: State Unemployment Tax

Rate and Wage Base Vary by State

Each state sets its own tax rate (typically 0.1%–10%) and wage base (often $10,000–$15,000). Rates are split between new and experienced employers, and some states offer experience‑rating credits.

Calculation Example (California)

• Rate: 3.4% on first $7,000.
• Employee earnings: $12,000.
• Taxable wages = 7,000.
• SUTA tax = 7,000 × 0.034 = $238.

Filing

State tax returns are due quarterly or annually, depending on the state. Employers must deposit taxes within 30 days of the due date.

Workers' Compensation Premiums

Premium Basis

Premiums are calculated on a per‑employee basis using the employee's gross wages and a rate per $100 of wages that varies by industry classification (e.g., construction, healthcare). Employers may also factor in experience modification (mod) rates that reflect past claim history.

Calculation Example

• Employee wages: $9,000.
• Rate for classification: $0.75 per $100 wages.
• Base premium = (9,000 ÷ 100) × 0.75 = $67.50.
• Mod factor: 1.1 (10% increase).
• Final premium = 67.50 × 1.1 = $74.25.

Payment

Premiums are typically paid monthly or quarterly, depending on the insurer's schedule. Accurate payroll reporting ensures correct premium calculation.

Putting It All Together

When budgeting for payroll taxes, calculate each component separately, then sum them to determine total employer cost. Use the following formula for a single employee:

Apply the appropriate rates for each state and industry classification. Automating these calculations in payroll software reduces errors and ensures compliance with filing deadlines.