- The SUTA tax funds state unemployment insurance (UI) for employees who have lost their jobs.
- Your SUTA payment is based on your state’s wage base and tax rate. These standards may change each year and vary by state.
- SUTA tax returns, payments and wage reports are due quarterly and can incur late fees if not received in full and on time.
- This article is for employers with employees (not independent contractors) who want a streamlined guide to understanding and paying SUTA tax.
Filing taxes, whether federal or state, probably isn’t one of the tasks you enjoy as an employer. Crunching numbers and processing payroll can seem like they require endless spreadsheets and papers full of calculations. Although these tasks can be tedious, they’re important at both the federal and state level. On the state side of things, your company must pay state unemployment taxes, also known as SUTA.
What is the State Unemployment Tax Act (SUTA)?
The State Unemployment Tax Act (SUTA) is a tax that states use to fund unemployment benefits. Employers pay SUTA tax, also known as state unemployment insurance (SUI) tax, based on their employees’ wages. Most states require employers to remit their SUTA taxes quarterly.
Not all employers are required to pay SUTA taxes. Some nonprofit organizations can instead reimburse their state directly for any unemployment benefits that former employees go on to use.
Independent contractors are responsible for paying their own taxes. If you have contractors on your team, you do not have to calculate and pay SUTA tax on their behalf.
New Jersey, Pennsylvania and Alaska are the only three states that require employers and employees to pay SUTA tax. If your business operates in one of these states, you need to also withhold SUTA tax from each of your employees’ paychecks.
Key takeaway: SUTA taxes allow states to fund unemployment benefits for people who have lost their jobs. SUTA tax is required for employees, but not for independent contractors.
SUTA wage base and rates
Each state determines its own standards for collecting SUTA taxes. The amount you’ll pay depends on your company’s taxable wage base and tax rate.
Employers pay SUTA tax on behalf of each employee according to their state’s wage base. A wage base is the maximum amount of an employee’s annual gross income that can be used to calculate SUTA tax. This amount varies by state.
Employers do not pay SUTA tax on income exceeding their state’s wage base. For example, North Carolina’s 2021 SUTA wage base is $26,000 annually. If an employee makes $18,000 per year, their taxable wage base is $18,000, and their employer calculates SUTA based on this amount. If an employee makes $60,000, their employer only pays taxes on the first $26,000, since this is the maximum amount that can be considered for the tax.
The other factor that goes into calculating SUTA tax is the tax rate. Each state sets its own minimum and maximum rate. This range typically changes every year. Several factors determine where your tax rate will fall within your state’s range:
- The age of your business. In many states, new businesses are given a standard tax rate. Once your business is more than one to three years old (the exact time frame depends on your state), you will have to pay a new tax rate.
- Industry turnover. Some states determine an employer’s SUTA rate based on the industry in which their business operates. For example, due to high turnover rates in the construction industry, construction companies have higher SUTA tax rates than non-construction companies.
- Unemployment claims. Your tax rate can vary based on how many of your former employees have filed unemployment claims. This factor is known as your experience rating. The higher your experience rating is, the higher your tax rate will be.
How can you find your SUTA rate?
You can find your annual SUTA rate on your state’s department of labor or unemployment website. Browse this list of contact information for each state’s department to find the appropriate authority to contact.
Example of SUTA tax calculated
To calculate the amount of SUTA tax you’ll need to pay for each employee, multiply your tax rate by the taxable wage base of their income.
Here’s an example: Joshua is the owner of a new business in New Jersey. After checking the state’s department of labor website, he finds that his 2021 tax rate is 2.6825% and that New Jersey’s wage base is $36,200. Joshua’s employee, Mark, makes $41,000 per year. Though Mark makes more than the wage base, his taxable wage base remains $36,200. This means Joshua’s SUTA tax payment for Mark will be 0.026825 x $36,200, or $971.07.
How to apply for a SUTA account
To start paying SUTA tax, you need to set up an unemployment insurance tax account through your state. Take the following steps to apply for a SUTA account, though the process may vary by state.
- Gather required information. To complete your application, you’ll need your federal employment identification number (EIN). You should also include the date of your first payroll, your business entity type and your social security number.
- Create an online account. The unemployment insurance section of your state’s department of labor or unemployment tax office will display a link to an employer portal. Click the link, then follow the steps on screen to create a username and password.
- Download an application. Based on the information you provided, you will receive the forms needed to complete your application. Download and complete these forms.
- Return your application. Send or deliver the completed forms to your state’s department of labor or unemployment office. The address should be posted on your state’s website.
- Receive confirmation. After submitting your application, your state will send you a notice stating whether your business is liable to pay SUTA tax. If so, you will receive an employee account number.
Tip: You can find specific steps to apply for your SUTA account on your state’s department of labor or employment website.
What are my obligations for paying SUTA?
To determine if you are required to pay SUTA tax and submit any attendant reports, take these steps.
- Follow your state’s guidelines. Each state has its own qualifications for employers who must pay SUTA tax. Check with your state’s unemployment tax office to learn these requirements.
- Fill out the appropriate forms. In addition to filing your SUTA tax return, you’ll need to fill out a wage report that details the total amount you paid your employees each quarter. To file your payroll taxes and fill out your report, visit your state’s website and download the SUTA (or UI) quarterly tax and wage reports.
- Calculate your payment. Determine your business’s SUTA contribution based on your state’s wage base and tax rate. Consider using top payroll software, such as those in our Paychex review and our review of ADP, to keep track of your employees’ quarterly wages and accurately calculate your SUTA payment. Doing so automates your SUTA calculation process and saves valuable time.
- Submit taxes and reports on time. In most states, you’re required to file your reports and payments each quarter of the calendar year. These documents are due by April 30th, July 31st, October 31st and January 31st. Submit on time to avoid late fees.
Tips for lowering your SUTA rate
While your state’s standards largely determine your SUTA tax payment, you can exert some influence on your rate as well. Below are some tips to keep your SUTA rates as low as possible:
- Limit layoffs. The more unemployment claims your business processes, the more your SUTA tax rate will increase. To avoid rate increases, consider alternatives to laying off an employee, like revisiting your budget and reducing extra expenses.
- Reduce employee turnover. Businesses with high turnover rates often have high tax rates. Before you start the hiring process, plan to keep employee turnover low by making sure you need the help you’re paying for and that you can offer a healthy work environment.
- Voluntary payment. Some states allow you to buy down your tax rate. If eligible, you can make a payment to the state that lowers your business’s experience rating and thus your tax rate. New employers do not have this option since they are given a standard rate.
Key takeaway: You can calculate how much you need to pay for SUTA tax based on your state’s wage base and tax rate.
SUTA vs. FUTA
While states use SUTA tax to fund their unemployment insurance programs, the federal government provides assistance through the Federal Unemployment Tax Act (FUTA). This tax helps all states administer their programs for unemployment insurance and job services. During periods of high unemployment, FUTA allows states to borrow from the federal fund to pay benefits.
While some states require employees to pay SUTA tax, only employers are required to pay FUTA tax. Employers pay this tax annually. The FUTA tax rate is a flat 6%, and the federal wage base is $7,000. If you pay your SUTA tax in full and on time, you may be eligible for a tax credit that lowers your FUTA tax rate from 6% to 0.6%.