Federal Unemployment Tax Act (FUTA) Explained for Australians in 2025

Australians often hear about tax policies from around the world, but few spark as much curiosity as the US Federal Unemployment Tax Act (FUTA). While FUTA is a cornerstone of America’s unemployment insurance system, it also provides a fascinating lens for understanding how countries—Australia included—fund support for the jobless. In 2025, as global economies grapple with cost-of-living pressures and evolving workforces, understanding FUTA’s role and its differences from Australia’s approach is more relevant than ever.

What Is the Federal Unemployment Tax Act (FUTA)?

Enacted in 1939 and continuously updated since, the Federal Unemployment Tax Act (FUTA) is a key US law requiring employers to pay a federal tax to fund unemployment benefits. The tax is not deducted from workers’ pay; instead, businesses pay it directly to the federal government. The current FUTA tax rate for 2025 remains at 6.0% on the first US$7,000 of each employee’s wages per year. However, most employers receive a credit of up to 5.4% for paying state unemployment taxes, effectively reducing the FUTA rate to 0.6% for compliant businesses.

• Who pays? US-based employers with $1,500+ in payroll in any quarter or who employ at least one worker for 20+ weeks annually.
• What does it fund? Unemployment benefits for eligible workers who lose their jobs through no fault of their own.
• How is it collected? Employers report and pay FUTA via IRS Form 940 annually.

In 2025, with the US job market still adjusting post-pandemic, FUTA remains a vital safety net—funding not just regular unemployment payments but also temporary extensions during economic downturns, such as those seen during COVID-19 and in response to recent tech sector layoffs.

How Does FUTA Compare to Australia’s Unemployment Funding?

Australia doesn’t have a direct equivalent to FUTA, but the goals are similar: to provide a financial buffer for people between jobs. Here’s how the two systems stack up in 2025:

• Funding Mechanism: While the US uses a dedicated employer-paid FUTA tax, Australia’s unemployment support—primarily JobSeeker Payment—is funded from general government revenue, not a specific payroll tax.
• Eligibility: Both systems require recipients to be involuntarily unemployed and actively seeking work, but Australia has more means-testing and mutual obligation requirements.
• Benefit Levels: In 2025, the Australian government increased the base rate of JobSeeker Payment by 10%, reflecting cost-of-living adjustments, while US states set their own benefit levels within federal guidelines.

Interestingly, there have been discussions in Australia about creating a dedicated insurance-style fund for unemployment, inspired in part by the transparency and stability of systems like FUTA. However, as of 2025, no such plan has been legislated.

Why Should Australians Care About FUTA?

FUTA might be an American acronym, but it has global resonance. Here’s why it’s worth paying attention to in 2025:

• Business Expansion: Australian businesses with US operations must comply with FUTA, so understanding the rules helps avoid costly penalties.
• Policy Inspiration: Australia’s policy debates often reference international best practice. FUTA’s dedicated funding model continues to shape discussions about the future of Australian social safety nets.
• Economic Resilience: As economic shocks become more common, both countries are re-examining how unemployment insurance can be made more robust. The US’s experience with FUTA-funded emergency measures has influenced how Australia considered its own COVID-era and post-pandemic support policies.

For example, during the COVID-19 pandemic, the US used the FUTA framework to quickly scale up unemployment benefits and introduce temporary programs. Australia, in contrast, relied on ad-hoc supplements and one-off payments. The predictability of a dedicated fund like FUTA is increasingly attractive to policymakers seeking greater stability for workers.

2025 Policy Updates and What’s Next

This year, the US Congress debated raising the FUTA wage base from $7,000 to $12,000 to better reflect modern earnings and bolster the fund’s solvency—a move that could have significant implications for multinational employers. Meanwhile, the Australian government’s 2025-26 Federal Budget reaffirmed its commitment to general revenue funding for JobSeeker but hinted at a review of alternative models to future-proof support in a more volatile job market.

For Australians working for or running businesses with a US footprint, staying up to date on FUTA changes is essential. And for policy watchers, FUTA remains a touchstone in the ongoing conversation about how best to support people through economic transitions.