What Is SUTA? Everything You Need To Know

Taxes aren’t exactly exciting — but they’re a necessary part of doing business. If the term State Unemployment Tax Act or SUTA sounds intimidating, don’t worry. Let’s break it down piece by piece.

What Is SUTA?

The State Unemployment Tax Act, commonly known as SUTA, is a state-level payroll tax that funds temporary unemployment benefits for individuals who have lost their jobs.

The SUTA tax fills state unemployment insurance coffers, ensuring a safety net for employees between jobs. It’s a critical resource that helps former employees during turbulent times.

It’s important to note that while SUTA is the term most often used, this tax may go by other names depending on your jurisdiction, such as state unemployment insurance (SUI) or reemployment tax. The essential function remains the same — to provide financial support for unemployed workers.

How Does SUTA Differ From State to State?

Each state administers its own SUTA program, which means compliance requirements can vary considerably. For instance, Alaska, New Jersey, and Pennsylvania require both employers and employees to contribute to the SUTA fund. On the other hand, certain states offer exemptions for specific types of organizations like nonprofits.

States such as Florida and Washington have particular rules around SUTA exemptions for nonprofit organizations. On the other hand, Illinois and New York have unique regulations businesses must follow, adding another layer of complexity to SUTA compliance.

The SUTA landscape gets even more intricate for businesses operating across state lines. Companies must adhere to the tax rules in each state where their employees are located.

If your business employs remote workers across the country, you’ll want to keep a keen eye on state-specific SUTA regulations to ensure you’re not running afoul of compliance requirements.

How Is SUTA Different From Other Taxes?

Understanding SUTA is essential, but let’s not overlook its relatives in the payroll tax family. Comparing SUTA with other types of unemployment taxes like FUTA and SUI can offer a clearer picture of your overall tax responsibilities.

SUTA vs. FUTA

First is the Federal Unemployment Tax Act, or FUTA. At its core, FUTA is the federal counterpart to SUTA. While SUTA is administered at the state level, FUTA is a payroll tax levied by the federal government. Both taxes aim to support unemployment benefits, but their reach and administration differ significantly.

FUTA taxes go into a federal fund managed by the Department of Labor and are used nationwide. SUTA, on the other hand, contributes to a state-specific fund utilized to support unemployment claims within that particular state.

Additionally, the tax rates, contribution rates, and taxable wage bases are set by each state in the case of SUTA, whereas FUTA parameters are uniform and governed by federal law.

SUTA vs. SUI

SUI may seem like another term for SUTA, but nuances do exist. While both SUTA and SUI are state-administered payroll taxes funding unemployment benefits, the terminology can differ based on state guidelines.

In essence, SUI is often the term used in states with specific regulatory frameworks or unique features in their unemployment tax structure. For example, in California, you’ll encounter SUI instead of SUTA, but the tax serves the same purpose of financing unemployment benefits for former employees.

How Can Employers Calculate SUTA?

Calculating your SUTA tax isn’t just good practice but a necessity for employers to navigate their tax liability adeptly. You can calculate SUTA with a straightforward formula: (wage base) x (tax rate).

Sounds simple? It would be, if every state followed a uniform code — but this is where state-specific nuances come into play.

Find State-Specific Tax Rates

Unlike its federal counterpart, FUTA, where the tax rate is consistent across the board, each state sets its own wage base and unemployment tax rate. The state’s unemployment office or agency will assign a specific tax rate to each employer. You’ll need to consult your state’s unemployment insurance program for these critical details.

To make things more complicated, these rates are subject to change based on annual evaluations. It’s crucial to keep an eye on updates from your state’s Department of Labor to calculate the SUTA rate correctly each year.

Several variables can affect your assigned SUTA tax rate:

New employer rate: If you’re a small business that’s just opened its doors, you’ll be given a new employer rate, which is generally an average rate based on your industry.
Layoffs: The more employees you lay off, the higher your tax rate may climb. It’s a risk-reward situation.
Tax account standing: If you’ve made timely tax payments and maintained your tax account diligently, chances are your rate will be more favorable.

Use Employer Identification and State Account Numbers

For record-keeping and formal documentation, make sure you use your Employer Identification Number (EIN) and state-specific account number. These numbers will be essential when filing with the IRS and the state’s unemployment fund.

Be Aware of SUTA Dumping and Tax Credits

Be wary of SUTA dumping — a practice where businesses attempt to manipulate their SUTA tax liability. Not only is it illegal, but it also can result in severe penalties.

Conversely, tax credits might be available to reduce your unemployment insurance tax if you have a history of low turnover and timely payments.

Apply for an Unemployment Insurance Tax Account

The application process for a state unemployment insurance (UI) tax account begins at your specific state’s labor or unemployment website. Since each state has unique requirements for SUTA compliance, this resource serves as your starting point for understanding the steps involved in application and registration.

Most states offer online application systems to streamline the application process. In these instances, you would navigate to the dedicated employer portal, complete the required forms, and submit them electronically. With Mosey, you have the ability to automate opening UI accounts as an even easier, more streamlined option.

After you submit your application, it will undergo a review by the respective department. You will be notified upon the completion of this review process.

If your business is determined to be liable for SUTA tax, you will be assigned a unique state employer tax number. This distinct identifier is separate from your EIN and mandatory for completing all SUTA-related tax forms and correspondence.

In Colorado, for example, you are required to register for Unemployment Insurance with the Colorado Department of Labor & Employment (CDLE) if the following is true in the current or preceding calendar year:

You have at least $1,500 in quarterly gross payroll OR
You had one or more employees in 20 different weeks

Find the SUTA Wage Limit

Navigating taxes can feel like a maze of complex regulations. But here, we’ll unravel the intricacies surrounding the SUTA wage base, often called the wage limit.

Understanding this is vital to any employer’s tax strategy, particularly for the meticulous management of SUTA tax liability.

What Is the SUTA Wage Base?

The SUTA wage base is a cap on the amount of an employee’s earnings that’s subject to SUTA tax. Think of it as the ceiling — once earnings go beyond this point, they’re not subject to additional SUTA taxes.

Unlike the fluctuating SUTA tax rates that depend on various employer-specific factors, the wage base is a fixed number that applies uniformly to all employees within a state.

State-Specific Wage Bases

Remember that the SUTA wage base is set by individual states, not the Department of Labor or the IRS. This wage base varies depending on your business’s location and can change annually.

For example, in Massachusetts, newly subject employers who are in the non-construction industry pay at a tax rate that aligns with a positive account reserve percentage between 10.5% and under 11% from the current rate schedule. This specified rate helps maintain the health of the UI fund overall — the account reserve percentage is a reflection of the UI fund’s health, and a higher percentage equates to a more built-up fund. The new employer rate for 2023 is 1.45%.

Regularly checking your state’s updated wage base is a necessity for compliance.

Periodic Checks for Compliance

Given that each state sets its own wage base, and these are subject to change year-on-year, it’s crucial to stay updated. Consult your state’s unemployment insurance program and tax account for the latest information. This practice will ensure you stay within legal boundaries while optimizing your tax payments.

Calculate the SUTA Tax Rate

Let’s look at an example to see how to calculate the SUTA tax rate. Imagine you have a business in California with two employees — Jim, who earns $10,000 per year, and Laura, who takes home $60,000 annually. California has set its taxable unemployment insurance wage limit for 2022 at $7,000.

What does this mean? Simply put, you’ll be responsible for paying SUTA taxes on up to $7,000 of each employee’s earnings. Anything beyond that is SUTA-tax-free.

Staying Complaint Across States With Mosey

Maintaining tax compliance isn’t always straightforward — especially when you’re juggling requirements across multiple states. This is where Mosey comes into play. Designed as a comprehensive compliance platform, Mosey takes the complexity out of managing your payroll, registration, tax, and HR compliance by consolidating all essential state and local requirements in one place.

Need to set up accounts for withholding taxes, unemployment insurance, or workers’ compensation? Mosey can help automate the process. Mosey not only eases the setup of your tax accounts but also facilitates registration with your state’s secretary of state office.

If you need a hassle-free way to keep your tax processes organized, consider Mosey.