The State Unemployment Tax Act, better known as SUTA, is a form of payroll tax that all states require employers to pay for their employees. SUTA is a counterpart to FUTA, the federal unemployment insurance program. Like the federal unemployment insurance program, the state unemployment insurance sets a limit to the wages taxed. This is known as a taxable wage base. The taxable wage base varies from state to state.
This unemployment fund was established to provide unemployment benefits to displaced workers. Who pays unemployment tax? Employees do not pay into this fund, as SUTA tax is an employer paid tax.
Applying for a SUTA account
When you hire your first employee, you must sign up for a state unemployment tax account. The process to do this is different for every state. Check your state’s government websites for more details on how to get an account, or use this navigational guide for new employer information.
Once you set up an account with your state, the state should send you your initial unemployment tax rate.
Each state sets its own unemployment tax rates. Each state has a range of unemployment tax rates. There is not a single rate that all employers pay. A state will assign every employer an individual unemployment tax rate that they must pay. This tax rate is referred to as an assessment.
States have new employer rates. The new employer rate is a standard SUTA rate that is given to new employers in the state.
Once the new employer gains more experience, the state will assign a new rate. Assigned unemployment tax rates are based on your “experience rating.” As you gain experience, the state will adjust your unemployment tax rate.
States might also base unemployment tax rates on your industry. Industries that have higher employee turnover will often have higher SUTA tax rates. For example, many states have higher assessments for employers in the construction industry.
Most employers will receive an annual determination of their state unemployment tax rates. The state should send you a notice that has your updated unemployment tax rate.
SUTA wage base
Along with the unemployment tax rate, each state also sets a taxable wage base. This is the maximum amount of wages per employee for which unemployment tax is applicable each year. The taxable wage base is the same for all employers in the state. States can change the taxable wage base each year.
For example, the SUTA taxable wage base in Oklahoma during 2016 is $17,500. This means you will only pay state unemployment tax on the first $17,500 that every employee earns this year.
SUTA tax example
Let’s pretend you are a new employer in Ohio. You run a non-construction business. The new employer unemployment tax rate in Ohio for 2016 is 2.7%. The wage base is $9,000. This means you could pay up to $243 in SUTA taxes per employee ($9,000 x .027).
Now let’s pretend you are a new employer in Ohio, but in the construction industry. The SUTA rate for new construction employers is 6.5%. You could pay up to $585 in state unemployment taxes per employee ($9,000 x .065).
Paying SUTA tax
You will most likely file and pay state unemployment taxes quarterly. You will need to fill out your state’s quarterly return, which reports employee wages to the state unemployment tax office.
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Many states have an electronic funds transfer (EFT) service where you can pay your unemployment taxes online. Check with your state for more information on how to file and pay your state unemployment taxes.
Other terms for SUTA
Not all states refer to their unemployment tax as SUTA. Another common term many states use is State Unemployment Insurance, or SUI. Some states use more unique terms. For example, Florida calls its tax a reemployment tax.
If you have trouble finding SUTA information for your state, try searching for another term such as SUI, unemployment insurance, or unemployment tax.
You should adopt an efficient system to keep track of your SUTA tax obligations. Patriot’s Full Service Payroll services software will collect, file, and remit all payroll taxes for you. You can then view easy-to-understand payroll reports. Give it a try now.
Updated from original post on 3/17/2015.