State Unemployment Tax Act (SUTA)

What is SUTA Tax?

SUTA stands for the State Unemployment Tax Act. It’s a required payroll tax that all employers must pay. The money goes into the state unemployment fund on behalf of their employees. When you hear people talk about collecting unemployment, they are referring to payments made to them from SUTA funds when they lose their job.

What Is The Difference Between SUTA & FUTA Tax?

SUTA refers to the taxes paid at the state level, but there is also a federal equivalent paid at the federal level, called the Federal Unemployment Tax Act, or FUTA. FUTA taxes go into a fund that covers the federal government’s oversight of the states’ individual unemployment insurance programs. When necessary during times of high unemployment, a state may even borrow from FUTA funds to help provide benefits for unemployed people in their state.

Who Pays SUTA Tax?

In some states, both the employer and the employee pay SUTA taxes, but this is limited to Alaska, New Jersey, and Pennsylvania. Everywhere else, only the employer pays. If you have employees (not 1099 contractors), you should be paying this tax. If you have employees in those states that require employees to contribute as well, you will need to withhold SUTA tax from their wages and then remit it to the state.

How to Calculate SUTA Tax

Every employer in a state will receive an assessment or SUTA rate they’re required to pay. That rate may be updated periodically or differ from year to year. Every state may also determine its own SUTA taxable wage base (i.e., how much of an employee’s wages are taxed for SUTA).

*Example:* In Oklahoma, for example, the SUTA tax rate is 2.7%. The SUTA taxable wage base is $9,000. This means that the first $9,000 of an employee’s earnings are taxed at 2.7% for SUTA, or $243.

Who is Exempt From SUTA and FUTA?

Unemployment insurance (from SUTA funds) must be paid to those who become unemployed through a layoff or other means that isn’t the employee’s fault. Employees who quit their jobs are not eligible for those benefits. Employees who get fired may still be eligible, depending on the circumstances. For example, someone fired for “gross misconduct” would not be eligible, but someone let go for just not being the right fit or not having the right skills still might receive benefits. While receiving unemployment benefits, the former employee must be actively searching for a new job.

In some states and in some cases, a business might be exempted from paying SUTA. One potential example is nonprofit organizations or businesses with only a handful of employees. These exemptions vary from state to state, so check your state’s tax commission for details.

What is the SUTA Rate?

There is no single SUTA rate paid by every employer. The state assigns each employer their own individual rate. An employer’s rate may be based on how much experience they have as an employer. In some states, there are new employer rates set for all of that state’s new employers. Once the employer has been in business for a while, the rate will be adjusted by the state. An employer’s rate may also be determined by industry. For industries with higher turnover (such as construction), the SUTA tax rates may be higher. Employers should receive a yearly assessment from the state which determines their rate.

SUTA vs. SUI

The SUTA is implemented in each state. However, some states might call it something slightly different, such as State Unemployment Insurance, or SUI. In Florida, it’s known as the Reemployment Tax. Whatever it’s called in your state, it has the same function: to provide income for people displaced from their jobs.