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Passed by the U.S. Congress in 1939, the Federal Unemployment Tax Act (FUTA) established a joint state-federal program for providing partial wage replacement payments to workers who involuntarily lose their jobs. The Act actually established the framework for the program that had originally been proposed as part of the Social Security Act of 1935.

Under FUTA employers are required to contribute to the federal unemployment insurance fund as well as the state unemployment fund for each qualifying employee. Each state administers its own unemployment program that sets the state tax rate, the taxable wage base, qualifications for receiving benefits, and the amount of such benefits.

What Is the Purpose of the Federal Unemployment Fund?

Federal funds are used to pay each state’s administrative costs. In addition, Congress may extend benefits beyond the normal 26 weeks by funding 50% of an individual’s benefits, and in times of recession the federal government can extend benefits for an even longer time by covering all of the extended benefits.

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