State Unemployment Tax Act (SUTA) is a state-level payroll tax that employers must pay to fund unemployment benefits for workers who lose their jobs. The specific tax rates and regulations vary by state.
What does SUTA pay for?
SUTA primarily funds state unemployment insurance programs. These programs provide temporary financial assistance to former employees of businesses who have lost their jobs due to layoffs or other reasons beyond their control.
The funds collected through SUTA taxes are deposited into the state’s unemployment fund, which is used to pay out benefits to eligible unemployed workers.
What’s the difference between SUTA and FUTA?
While SUTA is a state-level tax, the Federal Unemployment Tax Act (FUTA) is a federal tax that employers must pay to support the federal unemployment insurance program.
The key differences between SUTA and FUTA include the tax rate and the governing bodies: SUTA rates vary by state, whereas the FUTA tax rate is set by the federal government. Additionally, SUTA taxes fund state unemployment benefits, while FUTA taxes support administrative costs of state unemployment programs and provide extended benefits during high unemployment periods. FUTA is governed by federal law, and payments are made to the federal government, while SUTA is governed by state law. Employers can learn more about FUTA at IRS.gov.
Who pays SUTA?
SUTA is an employer tax, meaning that it is typically paid by employers rather than employees. There are a few exceptions: Alaska, New Jersey, and Pennsylvania require both employers and employees to pay SUTA taxes.
All businesses with employees, from small businesses to enterprise corporations, are subject to SUTA at rates that vary by state, the size of the employer, and the employer's history with unemployment claims.
Who is exempt from SUTA?
Certain employers can be exempt from SUTA taxes, depending on the state and its specific laws. Often, this includes certain government employers or nonprofit organizations (provided they repay their unemployment claims). For example, in Washington state, nonprofits are exempt from SUTA taxes if they are registered as tax-exempt 501(c)(3) organizations and meet legislative criteria.
How do employers register for SUTA?
To pay unemployment insurance taxes, employers must first register for SUTA with the appropriate state agency. The exact process varies by state, but typically involves filling out forms provided by the state's labor department or unemployment insurance agency, which is often done online. Once registered, employers will receive a SUTA tax rate and instructions on how to submit payments.
What are SUTA rates?
SUTA rates, also known as contribution rates, are the tax rates assigned to employers by the state to fund unemployment insurance programs. These rates vary by state and are based on several factors, including the employer's history of unemployment claims and the overall health of the state’s unemployment fund.
What is the SUTA wage base?
The SUTA wage base is the maximum amount of an employee’s wages that are subject to state unemployment taxes. This taxable wage base varies by state, meaning employers are only required to pay SUTA taxes on employee wages up to this limit. For example, if a state’s wage base is $10,000, employers would only pay SUTA taxes on the first $10,000 of each employee's wages for the year.
Who determines SUTA rates?
SUTA rates are determined by each state’s Department of Labor or similar agency. These agencies calculate the Unemployment Insurance or UI tax rate based on state-specific regulations and economic conditions. The rate is then assigned to employers based on factors like their industry, size, and experience with unemployment claims.
How are SUTA rates determined?
SUTA rates are primarily determined using an experience rating system.
Employers with a history of fewer unemployment claims generally receive a lower rate, while those with more claims may receive a higher rate. New employers typically start with a new employer rate, which is often a standard rate set by the state until the employer has enough history to be rated based on experience.
Over time, an employer's rate can change, becoming either higher or lower depending on their claims history and other factors.
When are SUTA rates determined?
SUTA rates are usually determined annually by the state and are communicated to employers before the start of the new calendar year. Employers receive their SUTA tax rate for the upcoming year, allowing them to budget accordingly for their unemployment tax obligations.
Can SUTA rates change?
Yes, SUTA rates can change. Factors that might affect them include changes in the state’s UI program, the employer’s unemployment claim history, and the state’s overall economic conditions. States may adjust rates annually or more frequently in response to these and other factors.
Where can employers find their SUTA rate?
Employers can find their SUTA rates in official notices sent by the state’s Department of Labor or unemployment insurance agency. Unemployment tax rates are typically included in the annual tax rate determination letter sent to employers. Employers may also be able to access their rates online through state-run portals.
How can employers reduce their SUTA liability?
Employers can reduce their SUTA liability by maintaining a stable workforce with fewer layoffs, thus lowering the number of unemployed workers drawing benefits. Employers can also participate in state-run programs aimed at reducing unemployment claims, or they can contest improper claims to ensure that only eligible workers receive benefits.
When are SUTA payments due?
SUTA payments are typically due quarterly, with deadlines set by each state. Employers must calculate their tax payments based on their assigned SUTA rate and the wages paid to employees within the calendar year.
What happens if employers miss SUTA payments?
If employers miss SUTA payments, they may face penalties, including fines, interest on the unpaid amounts, and potential legal action by the state. Missing payments can also lead to higher SUTA rates in the future, as a history of late payments can negatively impact an employer’s experience rating.
Frequently asked questions about SUTA
Still have questions about SUTA? Learn more in the FAQs below.
Does SUTA have any other names?
Yes, SUTA is also known as state unemployment insurance (SUI) tax or state unemployment insurance contributions. It may also have state-specific names; for example, in Florida, it’s known as the reemployment tax.
These terms are often used interchangeably and refer to the same state-mandated tax that employers pay to fund unemployment benefits for workers who lose their jobs.
What should an employer do if they have employees in multiple states?
If an employer has employees in multiple states, they typically must register for SUTA in each state where they have employees. Some states have specific rules for this, like Texas, which uses a checklist to determine where a multi-state employer should report their employees’ earnings.
What is SUTA dumping?
SUTA dumping is an illegal form of tax evasion where employers manipulate their unemployment tax rates by shifting employees or payroll to different businesses or accounts to take advantage of lower SUTA rates. This is prohibited by law, and states actively monitor and investigate potential SUTA dumping. Employers found guilty of SUTA dumping can face significant penalties, including fines, back payments, and increased tax rates.
Rippling and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.