The original legislation that allows the federal government to tax businesses for the purpose of collecting revenue that is then allocated to state workforce agencies. The Federal Unemployment Tax Act works with state unemployment agencies to provide funds to workers who have lost their jobs. Employers must file Form 940 annually in order to report this tax. This tax is sometimes collected periodically throughout the year.
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When the economy is growing and unemployment is low, the unemployment fund tends to grow, thus creating a surplus that can be accessed during economic downturns. FUTA also pays half the cost of extended unemployment benefits. For example the FUTA tax rate was at 6.2% through 2009, and was levied only on the first $7,000 earned by each of a company's employees.
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