What is SUTA tax?

SUTA stands for State Unemployment Tax Act. The SUTA tax is a mandatory  payroll tax  that all employers have to pay, and this money goes to the state unemployment fund. When a formerly employed worker needs to receive unemployment benefits, they receive payment from the SUTA program when they lose their job.

What is the difference between SUTA and FUTA tax?

SUTA refers to taxes paid at the state level, but there is also a federal equivalent. This portion   is directed by the Federal Unemployment Tax Act (FUTA) .

Meaning of FUT

FUTA  taxes  go to a fund that covers the federal government's oversight of states' individual unemployment insurance programs. In times of high unemployment, a state can borrow from the FUTA fund as needed to help provide benefits to its unemployed workers.

Who pays SUTA tax?

In some states, both employers and employees 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 must pay this tax. If you have employees in states where employees are required to contribute, you   must  withhold SUTA tax from their pay and then send it to their state.

What is the SUTA tax rate?

There is no single SUTA rate for every employer — the state assigns a rate to each organization. An employer's rate may be based on how many former employees have filed UI claims or how much experience it has as an employer. Some states set uniform rates for all new companies. Once the employer has been in business for a while, the state will adjust its rate accordingly.

Employer rates can also be determined by industry. For industries with high turnover (such as  construction  ), SUTA tax rates will likely be higher because more of their employees are required to use the system.

How to calculate SUTA tax

Each employer in a state will receive an assessment or SUTA tax rate that they must pay. That rate is updated periodically and can vary each year. Each state   also sets its own SUTA taxable wage base (that is, how much of an employee's pay is subject to this tax).

Take Oklahoma, for example:

Source:  Oklahoma Employment Security Commission

Let's assume Brenda opens a new retail business this year in Tulsa, OK. The amount she must pay is calculated as follows: $27,000 x 1.5% (salary base x new employer tax rate). Assuming her employees earn above the threshold, she will have to pay $405.00 per employee per year (until the state eventually adjusts her rate).

Who is exempt from SUTA and FUTA?

Unemployment insurance (from SUTA funds) must be paid to workers who lose their jobs through no fault of their own (such as layoffs or company downsizing). Workers who quit their jobs are not eligible for unemployment benefits.

However, depending on the circumstances, employees who are dismissed by the employer may still be eligible. For example, someone who loses their job due to ""  gross misconduct  "" will not be eligible, but someone who is fired simply for not having the right qualifications or the right skills may still receive benefits.

Additionally, the former employee must actively look for a new job, file weekly or biweekly claims, and meet other requirements to receive payment.

Business Tax Exemption

In some cases, a business  may be exempt from paying the SUTA tax  . For example, a business with only a handful of employees may not have to pay. Also, 501(c)(3) organizations, such as charities, private foundations, and nonprofits, are  not required to pay state unemployment taxes.  Instead, they can reimburse the state for their unemployment claims.

These exemptions vary by state, so contact your labor department or tax department for more information. If your organization   meets  the requirements , you  will need to file an exemption application with the IRS.

Hundred vs. Climb

SUTA is implemented in every state. However, some states may call it something different, such as  State Unemployment Insurance, or SUI  . In Florida, it is known as the Reemployment Tax. Whatever it is called in your state, its job is the same: to provide income to people displaced from their jobs.