Employers must ensure that they are appropriately estimating what they owe when paying taxes to support state unemployment insurance funds. In this article, you’ll get to have a deep understanding of the SUTA tax and its associated requirements.
- The SUTA tax is used to pay for state unemployment insurance for workers who have lost their jobs.
- Your SUTA payment is determined by the wage base and tax rate in your state. These requirements may alter from year to year and vary by state.
- SUTA tax returns, payments, and wage reports are required quarterly, and if not returned in whole and on time, late fines may apply.
- This page is for employers that have workers (not independent contractors) who want a quick orientation to SUTA tax knowledge and payment.
As an employer, filing taxes, whether federal or state, is surely not one of your favourite duties. Calculating figures and processing paychecks might appear to necessitate endless spreadsheets and calculations on paper. Although these responsibilities are time-consuming, they are critical at the federal and state levels. Your business must pay state unemployment taxes, often known as SUTA, to the state.
Table of Content
- An Introduction to State Unemployment Tax Act (SUTA)
- SUTA: Wage Bases & Tax Rates
- Who Pays the State Unemployment Tax?
- How to Calculate State Unemployment Tax?
- SUTA Tax Example
- How to Apply for SUTA Account?
- Accountabilities Related to Paying SUTA
- What If You Don’t Pay the Tax?
- How Can You Reduce Your SUTA Tax Rate?
- SUTA Tax Vs. FUTA Tax
- How Can Deskera Payroll Help?
- Key Takeaways
- Related Articles
An Introduction to State Unemployment Tax Act (SUTA)
The State Unemployment Tax Act, or SUTA, is a payroll tax that businesses must pay to their state unemployment fund on behalf of their employees. In some states, both the employer and the employee pay the SUTA taxes. These contributions help displaced employees by providing financial assistance.
In each state, SUTA was developed in conjunction with the federal unemployment tax. While it is commonly referred to as the State Unemployment Tax Act, it is also known as State Unemployment Insurance (SUI) or Reemployment Tax in other places, such as Florida.
The SUTA tax rate and taxable wage base (the part of employees' wages that is taxable) are set by each state. While various states have a variety of state unemployment tax rates, businesses are obliged to pay an assessment or tax rate. It is updated on a regular basis and may rise for firms in specific industries with high turnover rates. States may also adjust their SUTA or SUI rates on a yearly basis.
SUTA: Wage Bases & Tax Rates
The SUTA tax wage base is defined by each state. The greatest amount of an employee's income that can be taxed is known as the taxable wage base or threshold.
For all employers in the state, the SUTA pay base is the same. For 2020, the salary base for employers in Washington state was $52,700. This implies that all Washington companies who are not exempt from withholding SUTA tax must pay the tax until an employee earns this amount.
Each year, the wage base in each state changes. Keep your SUTA salary base up to date to guarantee you're withholding the right amount of SUTA tax for each employee.
SUTA rates, like SUTA pay bases, differ from state to state. SUTA rates vary by state (for example, in Alabama, they range from 0.65% to 6.8%). Your state will usually tell you what your SUTA tax rate is when you register as an employer.
Many states offer a set SUTA rate to new companies. Each state's new employer SUI rate is different. Your state will give you a new rate if you have more experience as an employer.
States can also set rates based on their industry, such as construction vs non-construction. Construction industry SUTA rates are often greater than non-construction businesses.
For instance, the 2019 Ohio new employer SUTA rate is 2.7%. However, the new construction employer rate for 2019 is 5.9%.
If your state does not issue a standard new employer rate, you must wait for it to be assigned to you.
Follow the procedures below to determine your SUTA rate if you're a new employer:
- Register with your state for a SUTA tax account.
- The state will provide you with a new employer contribution rate.
- Get the most recent SUTA rate from your state.
Who Pays the State Unemployment Tax?
Employers, including nonprofit organisations, are liable for paying SUTA taxes in the majority of states. While Section 501(C) (3) organisations are exempt from paying federal unemployment taxes, they must either pay into their state unemployment tax programme or self-insure by reimbursing the state for unemployment claims paid out to their former employees. The employer is liable for reimbursing the state for all employee benefits obtained in the latter situations.
While SUTA is primarily an employer tax, employees in three states must additionally pay state unemployment taxes. These are:
- New Jersey
You'd have to deduct SUTA tax from employees' pay and remit it to the state in these states.
How to Calculate State Unemployment Tax?
You pay SUTA taxes on a percentage of each employee's profits up to a specified level, much like other payroll taxes.
Your SUTA tax rate is within a range set by the state. States determine your SUTA tax rate depending on your industry and the number of former employees who have filed for unemployment benefits. A standard rate is frequently applied to new businesses.
The SUTA tax rate range is determined by each state. The ranges are wide: in Kentucky, for example, the range is from 0.3% to 9%.
Each state also has an annual SUTA limit, after which an employee's earnings are not taxed until the following year.
You may be aware that when an employee earns $137,700 for the year, Social Security taxes are no longer payable. The same notion applies to the SUTA limit, often known as the SUTA pay basis.
SUTA Tax Example
Consider yourself the owner of a 25-year-old California company.
Employers in California pay a SUTA rate ranging from 1.5 to 6.2%, with new non-construction enterprises paying 3.4%. The SUTA salary base in the state is $7,000 per employee.
Your SUTA tax rate is 3% since your company has never laid-off employees. You have employees who earn the following every year:
Annual Taxable Wages
SUTA Wages (Upto State Limit Per Employee)
SUTA Liability (SUTA Wages* SUTA Rate)
$210 ($7,000 * 0.3)
For A and C, you pay SUTA taxes up to the $7,000 state maximum. B's SUTA earnings are $3,000 since she earned less than the state maximum.
How to Apply for SUTA Account?
You must first open an unemployment insurance tax account with your state to begin paying SUTA tax. To apply for a SUTA account, follow the procedures below, but the process may vary by state.
- Obtain the required information. You'll need your federal employment identification number to finish your application (EIN). Include the date of your first payroll, the sort of business you have, and your Social Security number.
- Create your account online. A link to an employer portal will be shown in the unemployment insurance section of your state's labour department or unemployment tax office. To establish a username and password, click the link and follow the on-screen instructions.
- Download an application. You will receive the forms necessary to complete your application based on the information you supplied. Print and fill out these forms.
- Return your application. Send or mail the completed paperwork to the labour department or unemployment office in your state. Your state's website should have the address listed.
- Receive confirmation. Following the submission of your application, your state will give you a notification indicating whether your company is subject to SUTA tax. If this is the case, you will be assigned an employer account number.
Accountabilities Related to Paying SUTA
Follow these procedures to see if you're obligated to pay SUTA tax and file any related reports:
- Follow the rules in your state. Employers who must pay the SUTA tax must meet the requirements set forth by each state. To learn more about these requirements, contact your state's unemployment tax office.
- Fill out the necessary forms. You'll also need to fill out a wage report, which specifies the total amount you paid your employees each quarter, in addition to completing your SUTA tax return. Visit your state's website and download the SUTA (or SUI) quarterly tax and wage reports to file your payroll taxes and fill out your report.
- Calculate your payment. Calculate your company's SUTA contribution using the salary basis and tax rate in your state. To keep track of your employees' quarterly salary and precisely compute your SUTA payment, consider utilising excellent payroll software, such as those included in our Paychex review and our ADP review. This streamlines the SUTA calculating procedure and saves you time.
- Make timely tax and report payments. You must file your reports and payments every quarter of the calendar year in most states. The deadlines for these documents are April 30, July 31, October 31, and January 31. To prevent late fines, submit on time.
What If You Don’t Pay the Tax?
SUTA taxes are usually payable every three months. January 31, April 30, July 31, and October 31 are the deadlines. You can make payments digitally via your state agency in most states. Simply make sure you file your taxes on time to avoid incurring a late charge.
Consider the state of Rhode Island. Employers that fail to file quarterly tax reports and make payments by the due date in Rhode Island will be charged interest of 1-12% per month and penalties of $25.00 for failing to file quarterly tax reports and 10% for failing to make donations.
How Can You Reduce Your SUTA Tax Rate?
Your SUTA tax rate might be anywhere in the range set by your state, but you can take action to lower it.
For firms that have been registered in the recent two or three years, most states use set SUTA tax rates. The sector in which they work and the history of previous employees claiming unemployment benefits impact their rate as they get older.
Employers are encouraged not to lay off or terminate a large number of employees because of the SUTA rate assignment: SUTA tax rates are greater in companies with substantial staff turnover.
Some industries are more prone to higher rates than others. Because of the high incidence of staff turnover in the construction business, some states establish specific ranges for construction enterprises.
Avoid layoffs if you want to get a low SUTA rate. Employ people with skill sets that can adapt to your company's shifting demands.
Consider your recruiting methods if you've never laid off an employee and want to reduce your SUTA tax obligation. Because the tax is paid on all employees' pay up to the state limit, hiring more full-time employees and fewer part-time employees would lower your SUTA tax burden.
SUTA Tax Vs. FUTA Tax
Employers also pay the Federal Unemployment Tax Act (FUTA), which is equivalent to SUTA. FUTA funds the federal government's oversight of each state's individual unemployment insurance scheme, whereas SUTA funds the state's unemployment insurance. States can borrow from FUTA funds to offer assistance to jobless employees in cases of excessive unemployment.
Unlike the SUTA tax, the FUTA tax is a flat rate of 6.0% for all employers, regardless of where they do business. The FUTA tax rate is applied to the first $7,000 paid to each employee each year.
Employers who make their state SUTA contributions on time are eligible to have their FUTA taxes reduced under federal criteria. The federal government gives a 5.4% credit against any compulsory FUTA payments if a corporation pays its state unemployment contributions on time and without late payments. As a result, a company's FUTA expenditures can be cut in half, lowering the FUTA tax rate to 0.6%.
How Can Deskera Payroll Help?
Payroll management and employee management are integral to any organization. If you are looking for a holistic and automated tool to manage payroll, employees, expenses, contractor management, Deskera People could be the apt solution.
Process your payroll now with Deskera People
- The SUTA tax is paid for state unemployment insurance for workers who have lost their jobs.
- Each state determines its own SUTA tax rate and taxable wage base (the portion of employees' wages that is taxed).
- The SUTA tax wage base is defined by each state. SUTA rates, just like SUTA pay bases, differ from state to state.
- The employer is liable for reimbursing the state for all employee benefits obtained in the latter situations.
- SUTA taxes are usually payable every three months. January 31, April 30, July 31, and October 31 are the deadlines.