What does SUTA stand for? Here’s what you need to know

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.

Reemployment Tax

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.