Employers in Arizona are responsible for paying the Federal Unemployment Tax (FUTA), which funds unemployment benefits and workforce programs. While FUTA is a federal tax, it applies the same way in Arizona as in other states: employers pay tax on the first $7,000 of each employee’s annual wages. The standard FUTA rate is 6.0%, but most Arizona employers qualify for the full 5.4% state credit, reducing their effective rate to just 0.6%.
This guide walks you through the FUTA rules, wage base, and a step-by-step example so Arizona employers can calculate their liability with confidence.
Quick Answer
In Arizona, the Federal Unemployment Tax (FUTA) applies the same as it does nationwide. Employers (not employees) pay FUTA tax on the first $7,000 of wages per employee each year. The base FUTA rate is 6.0%, but most Arizona employers qualify for a 5.4% credit by paying state unemployment tax (SUTA) on time. This reduces the effective FUTA rate to 0.6%, or $42 per employee per year.
What Is FUTA?
The Federal Unemployment Tax Act (FUTA) funds unemployment benefits and job training programs. Key points:
- Paid only by employers (not deducted from employee paychecks).
- FUTA is reported annually on IRS Form 940.
- Employers may need to make quarterly deposits if their liability exceeds $500 in a quarter.
Arizona FUTA Wage Base and Tax Rate
- Taxable wage base: $7,000 per employee (set by federal law, not the state).
- Base rate: 6.0%.
- Credit for Arizona employers: Up to 5.4% when state unemployment taxes are paid on time.
- Effective rate: 0.6% for most Arizona employers.
👉 Use the Arizona Payroll Tax Calculator to estimate FUTA along with state and federal payroll costs..
Step-by-Step Example: FUTA Calculation in Arizona
Scenario: You employ 5 workers in Arizona, each earning $40,000 annually.
- Identify taxable wages: $7,000 per employee × 5 employees = $35,000.
- Apply FUTA effective rate (0.6%): $35,000 × 0.006 = $210 total FUTA tax owed for the year.
- Annual per-employee cost: $42 each.
Even if employees earn much more than $7,000, FUTA only applies to the first $7,000 of wages.
Filing and Deposit Requirements
- Form 940: FUTA must be reported annually (due January 31).
- Deposits: Required quarterly if liability exceeds $500.
- Payment method: Deposits are made through the Electronic Federal Tax Payment System (EFTPS).
FUTA vs. Arizona State Unemployment Tax (SUTA)
- Employers must also pay Arizona’s unemployment insurance tax (SUTA), which is separate from FUTA.
- Paying SUTA on time is what allows Arizona employers to take the 5.4% FUTA credit.
- Rates for SUTA vary by industry and employer history, while FUTA is flat.
👉 To see how FUTA interacts with state taxes, try the Arizona Federal Unemployment Tax Calculator.
FAQs About Arizona FUTA
Do employees in Arizona pay FUTA?
No, only employers pay FUTA tax.
What is the FUTA wage base?
$7,000 per employee per year, nationwide.
What is the effective FUTA tax rate in Arizona?
0.6% for most employers, assuming timely SUTA payments.
When do I file FUTA taxes?
Annually via Form 940, with deposits due quarterly if liability exceeds $500.
Is Arizona a FUTA credit reduction state?
No. Arizona employers receive the full 5.4% credit if they pay state unemployment taxes on time.
Harry is the creator of ArizonaPaycheckCalculator.com, a trusted resource for accurate and easy-to-use payroll and tax calculators. With a focus on clarity and precision, Harry helps Arizona residents understand their take-home pay, deductions, and withholdings. Dedicated to making complex calculations simple, he combines financial knowledge with user-friendly tools to save users time and confusion.