The Federal Unemployment Tax Act (FUTA) imposes a payroll tax on employers to help fund unemployment compensation programs. However, not all employers or employees are subject to FUTA. Understanding these exemptions is crucial for managing your organization’s tax obligations accurately and avoiding unnecessary payments.
In this blog, we explain the main categories of employees and corporations that are exempt from FUTA — with special attention to H-2A visa holders, nonprofit organizations, and family employees. All references are to the Internal Revenue Code (IRC), Treasury Regulations, and official IRS publications.
1. General Requirements for FUTA Coverage
You are generally subject to FUTA tax if you meet any of the following tests during a calendar year:
• General Test: You paid wages of $1,500 or more in any calendar quarter, or you had at least one employee for some part of a day in any 20 or more different weeks in the current or preceding year.
• Household Employees Test: You paid total cash wages of $1,000 or more to household employees in any calendar quarter.
• Farmworkers Test: You paid cash wages of $20,000 or more to farmworkers in any calendar quarter, or you employed 10 or more farmworkers during at least some part of a day in any 20 or more different weeks.
Reference: IRC § 3306(a), (c); IRS Pub. 15 (2025), “Who Must Pay?”
2. Exemptions for Specific Employees
A. H-2A Visa Holders (Temporary Agricultural Workers)
Wages paid to H-2A visa holders for agricultural labor are exempt from FUTA tax. While their wages are counted to determine if you meet the farmworker test, you do not pay FUTA tax on them.
Reference: IRS Pub. 15 (2025), “Farmworkers”
B. Family Employees
• Child under 21 employed by parent: Exempt from FUTA.
• Spouse employed by spouse: Exempt from FUTA.
• Parent employed by child: Exempt from FUTA.
Reference: IRC § 3306(c)(5); IRS Pub. 15 (2025), “Family Employees”
C. Employees of Certain Nonprofit and Governmental Organizations
• Section 501(c)(3) Organizations: Wages paid by qualifying nonprofits are exempt.
• Federal, State, and Local Governments: Exempt from FUTA.
• Indian Tribal Governments: Exempt if compliant with state unemployment law.
Reference: IRC § 3306(c)(6), (7), (8); § 3309(a); IRS Pub. 15 (2025)
D. Other Specific Exemptions
• Students: Services for the school they attend are exempt.
• Minors Delivering Newspapers: Exempt if under age 18.
• Nonresident Aliens (F, J, M, Q Visas): Exempt if working consistent with visa purpose.
Reference: IRC § 3306(c)(10), (15), (19); IRS Pub. 15 (2025)
3. Exemptions for Certain Corporations and Organizations
A. Nonprofit Organizations
Section 501(c)(3) organizations are permanently exempt from FUTA tax on wages paid to employees. This exemption cannot be waived.
B. Governmental Entities
Wages paid to federal, state, and local government employees are exempt.
C. Indian Tribal Governments
Federally recognized tribes are exempt if they comply with state unemployment insurance rules.
4. Special Notes on Exemptions
• Section 501(c)(3) organizations must still pay Social Security and Medicare taxes (FICA), unless another exemption applies.
• Other nonprofits (such as 501(c)(4), (5), (6)) are generally not exempt from FUTA unless otherwise specified.
• Household employers may still owe FUTA if they pay $1,000 or more in a quarter, but exemptions may apply for certain family members.
5. References
• IRC § 3306 – Definitions for FUTA
• IRC § 3309 – Coverage of Nonprofits and Governments
• IRS Publication 15 (2025) – Employer’s Tax Guide
• IRS Publication 15-A (2025) – Employer’s Supplemental Tax Guide
• IRS Publication 80 (2023) – Federal Tax Guide for U.S. Territories
Conclusion
Understanding FUTA exemptions is essential for managing your organization’s payroll tax responsibilities accurately. The most common exemptions apply to H-2A workers, family employees, nonprofit organizations, and government workers.
At Inter CPA, we help businesses, nonprofits, and entrepreneurs stay compliant while optimizing their tax position. If you have questions about FUTA or other employment taxes, contact us — we’re here to help!
FAQs about FUTA Exemptions
Q: Are interns exempt from FUTA tax?
A: Interns who are students regularly attending classes at a school may qualify for exemption from FUTA if the services are performed for the same school.
Q: Can I avoid FUTA if I form a nonprofit?
A: Only certain nonprofits that qualify under IRC § 501(c)(3) are automatically exempt from FUTA. Other nonprofits may not be exempt.
Q: Do I owe FUTA for part-time employees?
A: If you meet the wage or employment thresholds, yes — unless the employee falls into an exempt category (such as family member or student employee).
