Washington ESD employer tax calculation frequency - how often must federal unemployment taxes be calculated

FUTA taxes are calculated quarterly, not weekly or monthly. You accumulate the wages throughout the quarter and then calculate the tax liability at the end. The federal rate is 6.0% on the first $7,000 of each employee's wages, but you get a credit for state unemployment taxes paid to Washington ESD which reduces it to 0.6% typically.

Wait, are you talking about employer taxes or employee deductions? Because employees don't pay federal unemployment tax - that's 100% on the employer. Washington ESD handles the state unemployment insurance which does come from employee paychecks, but FUTA is different.

I had this same question last year when we started our business. The calculation timing depends on your total FUTA liability. If you owe more than $500 in a quarter, you need to deposit quarterly. If less than $500, you can wait until you file your annual Form 940.

Been doing payroll for 10 years and the federal unemployment tax calculation is straightforward once you understand it. You calculate it based on wages paid during the quarter, not when you actually pay the employees. So if you pay someone on January 3rd for work done in December, that counts toward Q4 of the previous year.

okay but what if some of our employees also collect unemployment from Washington ESD during the year? does that affect how we calculate the federal taxes?

One thing to watch out for - make sure you're applying the wage base correctly. It's $7,000 per employee per year for FUTA, not per quarter. So once an employee earns $7,000 in a calendar year, you stop calculating FUTA tax on their wages for the rest of that year.

Just went through a Washington ESD audit last year and they were very thorough about making sure our state unemployment taxes were calculated correctly. The federal and state systems are separate but they do cross-reference sometimes. Make sure your wage reports match between what you report to Washington ESD and what you report to IRS.

For what it's worth, I use QuickBooks and it calculates all this automatically. Federal unemployment tax gets calculated each payroll but only gets deposited quarterly if we hit the threshold. Takes the guesswork out of it.

dont forget about the credit you get for paying state unemployment taxes to Washington ESD on time. That 5.4% credit reduces your effective FUTA rate from 6.0% to 0.6%. But you have to pay your Washington ESD taxes on time to get the full credit.

I think there might be some confusion in this thread about calculation vs payment timing. You should be accruing the FUTA liability with each payroll (for accounting purposes) even though you only make deposits quarterly. Your bookkeeping should reflect the liability as it's incurred.

One more thing - if you have any employees who work in multiple states, the FUTA calculation can get more complex. But since you mentioned Washington ESD specifically, sounds like all your employees are in Washington which keeps it simpler.

Just to summarize for the original poster - FUTA tax calculation happens quarterly based on wages paid during that quarter, but you track the $7,000 annual wage base per employee. Deposit quarterly if over $500 liability, otherwise annually. The 0.6% effective rate assumes you pay Washington ESD taxes on time.

One additional tip that might help - if you're doing this manually, create a simple spreadsheet to track each employee's cumulative wages for the year. Set up columns for employee name, total wages paid to date, and remaining FUTA taxable wages (up to the $7,000 limit). This makes it much easier to calculate your quarterly liability and ensures you don't accidentally pay FUTA on wages over the annual limit. I learned this the hard way when I overpaid FUTA taxes in my first year handling payroll and had to wait for a refund from the IRS.