Social Security, Medicare, and Federal Unemployment Taxes for Expatriates FEDERAL UNEMPLOYMENT TAX In general, employment by U.S. citizens working abroad for a U.S. employer is covered by the Federal Unemployment Tax Act (FUTA) if the work performed would be covered in the U.S.8 FUTA tax does not apply to resident aliens working abroad, even if they work for a U.S. employer. It also does not apply to American employees of foreign affiliates, and there is no option to elect foreign affiliate coverage as there is for social security coverage. There is a coverage exception for Canada and the Virgin Islands eliminating dual coverage. U.S. citizens working for a U.S. employer in those jurisdictions are covered by local unemployment compensation laws. The employer must pay the full 6.0% FUTA for employees if the state having jurisdiction does not require employer unemployment insurance tax payments. If no state payments are made, no credit against FUTA liability can be taken. 8. IRC ยง3306(c). 7-7