The Federal Unemployment Tax Act of 1939, also referred to as FUTA, is a United States law instituted during the Great Depression. Its main feature is an employer-based tax that is collected by the Internal Revenue Service. This national law helps fund state unemployment insurance, job services, and the payment of unemployment benefits.
Economic hardship laid the foundation for the Federal Unemployment Tax Act, as the 1930s witnessed an unemployment rate of 25 percent. President Franklin Roosevelt sought to relieve some of the crushing consequences of the Great Depression, so he assembled the Committee on Economic Security in 1934 with the aim of creating proactive legislation to battle the economic crisis. The Social Security Act of 1935 set up a framework for an unemployment tax, and the Federal Unemployment Tax Act of 1939 ultimately delivered on that promise. The primary aim of the act was to provide economic assistance for the unemployed by infusing relevant state agencies and government branches with more money.
Structure of the Federal Unemployment Tax Act is fairly straightforward. During 2010, for example, each employer was required to pay a 6.2 percent tax on each employee’s gross income per year. The requirement only extended to $7,000 US Dollars’ (USD) worth of earning, however. Once the worker’s earnings surpassed this amount for a year, the employer wasn't required to pay further tax. Employers pay this tax through IRS taxation Form 940 annually.
Federal Unemployment Tax Act details are flexible and subject to change. Some states tax the employee as well as the employer, for example. Exemptions are often added, and by 2010 included the wages paid by non-profit organizations, wages paid to certain interns, foreign services wages, and wages paid by the government. Exemptions also included wages for certain minors, some wages paid between family members, and wages for deceased employees.
Those required to pay the tax have expanded over time to include all employers who pay wages of at least $1,500 USD per employee. In addition, states can enact their own unemployment tax systems and earn up to a 90 percent credit from the national tax. States can also alter unemployment compensation programs on factors such as waiting periods, duration of the compensation, the actual rate of the compensation, and benefit extensions.
The FUTA has many proposed benefits. The committee responsible for its activation strongly believed that the wage replacement provided by unemployment insurance was a right earned by American workers. The act would benefit the larger economy as well, as it would lessen welfare needs and encourage cooperation between local and regional governments. More beneficial still, it would empower workers to spend, and thus ultimately stimulate the anemic economy. This principle of economic stabilization has remained a cornerstone of proponents’ arguments through the ensuing decades.
