The State Unemployment Tax Act, otherwise known as SUTA, requires employers to pay a payroll tax that goes directly into each state’s unemployment fund. Typically it is only paid by employers, but some states require both employer and employee to contribute (Alaska, New Jersey, and Pennsylvania).
SUTA, created in parallel with the Federal Unemployment Tax Act (FUTA) in 1939, was an effort to reinvigorate the U.S. economy during the Great Depression by providing funds to the record numbers of Americans who were unemployed at the time. It allows for a fund well-supplied enough to support workers who lose their jobs through no fault of their own with benefits.
Why do you need to understand SUTA? Because compliance is key.
What are SUTA taxes?
The responsibility of SUTA compliance falls to those in charge of company payroll, and payments are most commonly made in quarterly installments. The amount of tax is calculated differently depending on the state, and occasionally depending on the industry. The taxable wage base can range widely, so it’s important to check on compliance requirements in your state.
Your business will be assessed annually by the state, and the percentage you pay will be assigned somewhere in the range of your state’s minimum and maximum rate. New businesses are likely to be given a lower starting rate. As your business grows and you have more operating data to work with, your score will be dependent on the number of employees who filed for unemployment benefits the preceding year. In this case, higher turnover could mean higher tax rates.
Government employers, nonprofits, educational and charitable institutions are exempt from these taxes. Additionally, wages earned by employees younger than 21 are not required to be taxed. SUTA payments are also tax deductible for employers.
One thing to note is that, depending on where your business is located, the SUTA could fall under another name.
State Unemployment Insurance (SUI)
If you’re trying to determine what your tax rate is, consider searching under the term “State Unemployment Insurance” or “SUI” instead of SUTA. Many states use the terms interchangeably, so determine the compliance regulations where your company is based.
The Reemployment Tax is exclusive to Florida, and the Florida Department of Revenue has administered the tax since 2000. It serves the same purpose as the SUTA—collecting taxes from employers for the purposes of providing unemployment benefits. In Florida in particular, the taxable wage base is among the lowest in the country. “Only the first $7,000 of wages paid to each employee by their employer in a calendar year is taxable.”
Applying and registering
Check your state’s website—or the website for each state where your company employs workers—and check out the details. Each state’s process will vary slightly, but most states allow for online applications as well as paper. Once you apply, depending on the state, there will be a waiting period before receiving your tax number. The wait can vary from one day to six weeks, so gather the details and plan accordingly.
Once you have your tax number in hand you can register for SUTA online, and you will be required to register for each state where you employ workers. This can be time consuming, so automating this process through your payroll can save you a lot of time and effort, and ensure you stay compliant.
Calculating and paying
Because each state’s tax range varies, calculating your SUTA rate can be painstaking, especially if you have employees working in many different states. The money comes from a percentage of each employee’s earnings, up to a maximum. It’s important to stay on top of each state’s regulations annually if you want to remain compliant.
The most common way to pay is through withholding state income tax through your payroll and making the SUTA payments on behalf of the company monthly or quarterly. Any kind of automation in this case can help ease the process.
What does it mean for my business?
In April 2020, American unemployment hit its highest level—14.8%—since data collection began in 1948. By January 2021, 75 million unemployment claims were filed. Because COVID-19 put millions out of work at once, the unemployment system was put under immense pressure and its resources depleted, which will take time to recover from.
Because the unemployment fund balance plays a major role in determining the rate of taxes, it’s likely your business saw an increase in taxes. It is important to keep track of the current tax rates, as neglecting to pay the accurate amount can result in fines and penalties for your company—and in the worst case scenario, criminal penalties.
Some things to consider when calculating SUTA for your business:
Where your employees live and work
The funds from SUTA taxes go directly to support the unemployment service of the state where the work was completed. That means, if all your employees are based in one state, you only need to worry about the SUTA rate of that one location. If you have employees based all over the country, a much more common arrangement since COVID, you’ll need to pay each individual state the correct amount.
Your taxable wage base(s)
Because each state sets its own minimum and maximum rates—and because they are subject to change annually—keeping up-to-date on these numbers will help keep your company compliant. As with COVID, we saw the rates change more significantly than usual, so this is an area to watch. For the most accurate and updated information, visit each state’s official website for the finalized SUTA information.
Your turnover rate
Much of your tax rate assessment will be based on the number of employees who filed for unemployment the previous year, so turnover rates are important statistics to keep track of. Whether quarterly or annually, note your stats in an organized fashion so you’re ready to prepare your reports—or, in case of an audit.
Powerful solutions for streamlined operations
While the rate of taxes your state levies is not something you are able to control, how you organize your employee information, manage your payroll systems, and track your compliance measures is.
A system that manages all your payroll duties in alignment with HR information ensures that no matter where your employees are stationed, you’re able to track what you owe the state. To be able to look at your employee statistics from a dashboard level ensures that you never lose track of what you owe.
Automating compliance is a safety net, especially for larger companies with many employees and locations to keep track of, or for newer companies with smaller HR departments. Anytime you can automate processes, especially something as complex as SUTA registration and payment, you’re saving yourself time and money.
Being able to automate tax filing is another way to ensure you’re meeting all state requirements, as well as making sure you receive all your eligible tax deductions. Pre-built or custom reports created from that dashboard of information make it easy to visualize and share data across departments, or externally when requested.
Without an effective software tool, managing state and local tax laws and keeping up with SUTA reporting, registration, and payments can be a full-time job—and a very manual one at that. Automating the tasks most important to state and federal compliance is a great way to alleviate much of the SUTA compliance burden. Learn more about how Rippling's modern PEO software can save you hours of tedious admin work and keep your business compliant with SUTA regulations.