Employers pay two unemployment taxes on the same employee — one to the federal government (FUTA) and one to the state (SUTA). They look similar, but they have different rates, different wage bases, different deadlines, and different penalties when you get them wrong.

In California, the state side is administered by the EDD as the UI tax. Here is how each works, and where employers lose money.

FUTA vs SUTA at a glance

FUTA (federal) SUTA / UI (California)
Administered by IRS EDD
Wage base (2026) $7,000 per employee $7,000 per employee
Rate 6.0% gross, 0.6% with timely credit Experience-rated (varies by employer)
Form Form 940 (annual) DE 9 / DE 9C + DE 88 (quarterly/monthly)
Deposit timing Quarterly (monthly if $500+ liability) Monthly or quarterly, based on liability

FUTA: the federal piece

FUTA is a flat federal tax. The gross rate is 6.0% on the first $7,000 of wages paid to each employee, but if you pay your state unemployment tax on time and in full, you receive a credit of up to 5.4% — bringing your effective federal rate down to 0.6%.

  • Gross: $7,000 × 6.0% = $420 per employee
  • With full credit: $7,000 × 0.6% = $42 per employee
  • Lost credit (0.6% + full 6.0%): up to $420 per employee

That gap is the whole point: the FUTA credit is only available if your California UI tax is paid on time. Miss the state payments and you lose the credit and owe the full federal amount.

California SUTA (UI): the state piece

California's UI tax is experience-rated — your rate is assigned based on your payroll history, industry, and claims against your account. New employers get a standard rate; over time it moves up or down.

  • The rate is applied to the first $7,000 of wages per employee for 2026.
  • California does not withhold state disability from the employer side the same way — SDI is withheld from employees (1.3% in 2026, no cap), separate from UI.
  • Employers also pay the Employment Training Tax (ETT) on the same base, in a small amount for most employers.

Your UI rate notice comes from the EDD each year. Unlike FUTA, this rate is not fixed — it moves with your experience.

The FUTA credit depends on paying California UI on time. Late state payments do not just trigger a state penalty — they make your federal tax dramatically more expensive.

Where the $280 per employee figure comes from

The penalty structure is steep and layered:

Failure Cost per employee
Late FUTA deposit 2%–15% of the unpaid amount, depending on how late
Late FUTA return (Form 940) 5% per month, up to 25%
Failure to file / pay penalties combined Up to 25% of the balance
California UI late payment 15% penalty plus interest (per DE 88 rules)
Lost FUTA credit Up to $378 extra per employee (full 6.0% instead of 0.6%)

Stack a 15% state penalty on top of a lost federal credit and you reach roughly $280 per employee in avoidable cost — money that comes straight out of your margin for a filing that takes minutes to do correctly.

Deposit timing

  • FUTA: If your annual FUTA liability is $500 or less, deposit with your Form 940. If more than $500 in any quarter, you must deposit at least quarterly — and monthly once liability reaches $500 in a month.
  • California UI: File and pay via DE 88 on a monthly or quarterly schedule, based on your average liability. Late deposits trigger the 15% penalty plus interest.

Common mistakes that cost money

  • Assuming the federal and state wage bases are different (they are the same $7,000 base).
  • Missing the FUTA credit because state UI was paid late.
  • Using last year's UI rate instead of the current EDD rate notice.
  • Forgetting ETT on top of UI.
  • Failing to reconcile DE 9C wages against what was actually reported to the IRS.

FUTA vs SUTA checklist

  • ☐ Confirm your 2026 California UI rate from the EDD notice
  • ☐ Apply the $7,000 wage base to both FUTA and SUTA
  • ☐ Deposit FUTA quarterly (monthly if liability hits $500)
  • ☐ File and pay California UI via DE 88 on schedule
  • ☐ Include ETT where applicable
  • ☐ Verify timely state payments so the FUTA credit is preserved
  • ☐ Reconcile DE 9C wages against Form 940
The single most expensive mistake is paying state UI late. It does not just cost the state penalty — it forfeits the 5.4% FUTA credit and turns a $42-per-employee federal tax into $420. Timeliness, not complexity, is what protects you.

Need help with FUTA, SUTA, or California UI filings? Glendale Payroll Inc. handles FUTA deposits, EDD UI filings, DE 88 payments, and California compliance for small businesses across Glendale and Los Angeles. Reach out for a free consultation.