FUTA Tax Responsibility Regarding U.S. Citizens and Resident Aliens Abroad

Established in the 1930s, the Federal Unemployment Tax Act (FUTA) was put in place to mitigate the blow of involuntary unemployment. The current law requires that employers file Form 940. The taxes they pay are not deducted from wages but rather come directly from the employer based on the number of employees the company has.

FUTA Taxes for U.S. Citizens and Resident Aliens

When calculating FUTA taxes, a percentage (normally 6 percent) of the first $7,000 paid to each employee is the required rate from the government. Since this tax is used to pay the unemployed in the United States, a common question is whether FUTA taxes are required to be paid for employees living abroad.

If you are an American employer, the wages paid to U.S. citizens living outside of the United States are most likely required to be represented when completing Form 940. According to the Internal Revenue Service, an “American employer” is:

• An individual who is a resident of the United States
• A partnership with two-thirds or more of the partners residing in the United States
• A trust if all the trustees are residents of the United States
• A corporation organized under the laws of the United States, its states and the District of Columbia

If employers have resident aliens on their payroll, then those wages are generally exempt from FUTA taxes if they are employed outside the United States. However, exceptions include wages paid to resident aliens in connection with work on an American vessel or aircraft.

Other FUTA Special Circumstances

• Aliens in the U.S.
• Persons Employed in U.S. Possession/Territory
• Persons with Foreign Employer
• Persons Employed by a Foreign Government or International Organization

Whether you’re a small business owner or larger company, our team is available to help you stay on good terms with the IRS as you navigate paying quarterly or annual FUTA taxes on time.

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