Employers in non-credit reduction states that pay their state unemployment taxes on time can deduct up to what percentage from the full FUTA tax rate in calculating their FUTA tax payments?

• A. 0.6%
• B. 4.5%
• C. 5.4%
• D. 6.0%

Answer: (C)

In this area, the key idea is the credit you can take against FUTA tax for state unemployment taxes paid. When a state is eligible and you file on time, you can reduce your FUTA liability by a credit of up to 5.4% of the FUTA base. Since the base FUTA rate is 6.0%, applying a 5.4% credit lowers the tax due by that amount, leaving a net FUTA rate of 0.6% on the first $7,000 of each employee’s wages. So the percentage you can deduct from the full FUTA rate is 5.4%, with the practical effect being a 0.6% net FUTA rate after the credit.