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What Is SUTA Tax and Who Pays It?
Written by: Natalie Fell
Natalie is a writer with experience in operations, HR, and training & development within the software, healthcare, and financial services sectors.
Reviewed by: Daniel Eisner
Daniel Eisner is a payroll specialist with over a decade of practical experience in senior accounting positions.
Updated on October 2, 2023
What Is SUTA Tax and Who Pays It?
When payroll taxes come to mind, most people know all about withholdings deducted directly from an employee’s paycheck, like Social Security and Medicare. But state unemployment taxes are a different bird, for which businesses are fully responsible.
If you’re unfamiliar with this type of tax, you’ve come to the right place, as this insightful guide will give you the knowledge you need to triumph over the hassle of state taxes.
State Unemployment Tax Explained
The state unemployment tax is commonly referred to as SUTA, for the State Unemployment Tax Act. This act required companies to allocate a portion of their payroll taxes toward the state’s unemployment program, which pays out benefits to the unemployed until they find a new job or the predetermined benefit runs out.
Each state determines its SUTA tax rate, as well as what’s known as the taxable wage base, which details how much of an employee’s wages are taxed. It’s common for a state to have a range of SUTA rates, and for state governments to send employers periodic updates on their tax responsibilities.
Rate changes may be caused by any of a number of factors, such as a state review of industries experiencing high turnover or an increase in the number of your former employees filing unemployment claims.
You may also see SUTA referred to as SUI (state unemployment insurance) or re-employment tax, as the commonly used name tends to differ from state to state.
Who Pays SUTA?
The majority of states make the employer responsible for SUTA, not the employee. Unlike Social Security and Medicare, which are withheld directly from employee paychecks, SUTA is paid directly by the business in all states except Alaska, Pennsylvania, and New Jersey, where a portion is also taken out of employee wages.
While SUTA tax rates vary from state to state, the criteria for determining whether or not a company is responsible for the tax is essentially the same. If your company meets any of the below requirements, you will need to pay state unemployment taxes:
- Paid at least $1,500 in wages to employees in any quarter of the calendar year
- Had at least one employee on the payroll for at least 20 weeks in the past year. The weeks do not need to be consecutive.
Depending on your state, there may be exceptions when it comes to the SUTA tax obligation. In some states, nonprofit, religious, and educational organizations could be exempt. If you are unsure whether or not you’re responsible for SUTA, check with your state government or consult an accounting or tax professional.
Calculating Your Tax Rate
To calculate your state unemployment tax rate, you will need two key pieces of information: your state’s taxable wage base and the SUTA percentage rate.
For example, in Pennsylvania, the 2022 SUTA taxable wage base is $10,000. This means that the salary of each employee on your payroll is taxable up to $10,000. Any salary amount above and beyond that is not taxable.
The SUTA tax rate in Pennsylvania ranges from 1.2905% to 9.9333% and your own specific rate will be provided to you by your state government. To calculate your SUTA rate, you would multiply $10,000 by your unique percentage. So if your tax rate is 5.5%, you’d allocate $550 per employee to SUTA.
SUTA vs FUTA
SUTA was created in tandem with the Federal Unemployment Tax Act (FUTA) in 1939 in response to the high unemployment rate at the time. FUTA tax dollars go toward the federal unemployment program, which also provides assistance to unemployed workers.
For 2022, the FUTA tax rate is 6% with a taxable wage base of $7,000. The criteria for FUTA tax responsibility is the same as SUTA. In other words, if your company is required to pay SUTA, it will also be responsible for FUTA. To comply with tax laws, make sure you’re allocating the appropriate amounts for both tax types for each employee on your payroll.
When Are SUTA Payments Due?
SUTA tax payments are typically due on a quarterly basis, on January 31, April 30, July 31, and October 31, but there is a caveat. If your company owes less than $500 per quarter, you may be able to pay your SUTA semi-annually. Your state likely has an online payment system that will make the payment process quick and easy – be sure to check the state’s tax website.
What Happens If You Don’t Pay?
Failure to pay your SUTA taxes on time will likely result in a fine, the amount of which varies from state to state. Many states charge a late fee as well as interest on the amount owed.
Another consequence of not paying your SUTA tax on time is that it could affect any FUTA tax credits you may be entitled to. FUTA tax credits can help a company save up to 5.4% on their federal unemployment tax requirement, so make sure you meet your SUTA deadline each quarter.
How To Lessen Your Tax Burden
Paying SUTA taxes is a costly necessity. Companies with many employees on the payroll usually have significant tax obligations, but there are ways to reduce the burden.
1. Pay On Time
As mentioned above, failure to pay SUTA taxes on time results in costly penalties and fees that negatively impact your FUTA tax credit eligibility. As a result, you could miss out on additional cost savings.
2. Respond to Unemployment Claims
When one of your former employees files for unemployment, it increases your SUTA tax rate. So as soon as you receive an unemployment claim, review it promptly and address any discrepancies right away.
Waiting to respond to unemployment claims could delay any adjustments to your SUTA rate, which could affect your quarterly deadlines and result in you paying an incorrect amount.
3. Consider Alternatives to Layoffs
Many organizations choose to terminate employees in an effort to cut costs, perhaps forgetting that layoffs increase federal and state unemployment tax rates. Therefore, it’s wise to consult with an attorney or tax professional before making staff cuts, to confirm that the terminations will save you more money than the increased tax burden.
Keep in mind that layoffs tend to reduce morale and put other employees on edge, which could result in even more turnover and unemployment tax increases.
Use a Payroll Service
One of the benefits of using a payroll service is that they’ll keep track of your SUTA tax obligations and handle your payments so you’ll never miss a deadline. They’ll also stay up to date on any state changes to tax regulations and guidelines to ensure your payments are accurate.
While a payroll service can be a significant investment, it’s often cheaper than having to pay fees or interest due to late SUTA payments.
State unemployment taxes and staying in compliance may be annoying, but it’s also an entrepreneurial necessity in the vast majority of the US. Paying your SUTA taxes on time and making sure all payments are accurate is critical, as any mistakes could result in costly fees and missed federal unemployment tax credits.
Staying on top of your SUTA taxes and making sure your HR team, accounting department, or payroll service has everything under control is an important step on the road to success.