The State Unemployment Tax Act, or SUTA, is a payroll tax for unemployment benefits. Also known as State unemployment insurance (SUI), reemployment tax, and employment security tax, your payroll team must follow your state’s reporting guidelines to remain compliant. Here we look at SUTA tax and review what every business needs to know about reporting.
What is SUTA?
Employers deduct SUTA taxes when processing employee payroll. The taxes are designed to cover state insurance paid to qualified workers who lose their jobs through no fault of their own. Workers can register to receive unemployment benefits following the process in their state.
Non-compliance with SUTA withholding can lead to fines of up to $100,000 or more, depending on the state. Ongoing non-compliance can also result in criminal charges for employers. Therefore, it is imperative to ensure your payroll team understands the deduction rules in your state.
How is SUTA Calculated?
SUTA deduction rates and base wages can change each year. To make the calculation, your payroll team needs to ensure they are using the most current rate and base wage for all applicable states. The basic formula to calculate SUTA, however, is simply the wage base x your tax rate.
For example, the SUTA tax rate in Oklahoma is 2.7%, and the SUTA taxable wage base is $9,000. That would be 9,000 x 2.7% or $243 per employee.
What is a SUTA Wage Base?
The SUTA wage base tells you the amount of SUTA you must pay for each employee. However, it really is more like a maximum. So, whether someone earns $25,000 a year or $100,000 if the wage base in your state is $7,000, then you only pay SUTA for up to $7,000 per employee for the year.
What is SUTA Tax Rate?
The SUTA tax rate tells you what percentage you must contribute to the wage base for each employee. Every employer is given a specific rate that falls between the minimum and maximum rate range in their state. The rate factors are mostly based on your unemployment track record.
Here are the wage bases and rates by state for 2023:
|Wage Base||Min (%)||Max (%)|
As you can see, there are drastic variations from state to state, so it is essential to have a system in place that provides the information and calculations for your payroll team. Also, adding to the potential confusion, state unemployment offices assign your company a specific tax rate based on annual evaluations. Applying the rate related to the most recent evaluation is also a must.
How are SUTA Rates Determined?
Your tax rate falls between your state’s minimum and maximum rate based on a few factors:
- The age of your business
- Your turnover rate
- The number of unemployment claims from past employees
- Your industry
However, some states use their own specific factors. For example, Maine looks at your three-year average taxable payroll, claims in the past year, and the amount of taxes paid between July 1 of the previous year to July 31 of the current year. So, the specifics determining your rate can vary quite a bit depending on your state.
Your NAICS code is used to help determine your rate based on unemployment factors specific to your industry. Also, your state might require you to include Standard Occupational Classification (SOC) codes for employees on your quarterly SUTA tax returns, including:
- West Virginia (beginning January 2024)
Average SUTA Rate Increases for 2023
Unemployment tax rates for experienced employers in the 2023 tax year ranged from 0.07% to 18.78% compared to 0.08% to 20.93% in 2022.
FUTA vs. SUTA
While SUTA is the State Unemployment Tax Act, FUTA is the Federal Unemployment Tax Act. Both are designed to help fund workers who lose their jobs through no fault of their own. Most employers must contribute to both taxes. While each employer is evaluated to determine their SUTA rate, and each state has its base rate, the FUTA tax rate is 6.0%, with a base wage of $7,000 across the board.
The good news is that if your company paid wages subject to state unemployment tax, you could be eligible to receive a credit of up to 5.4% of FUTA taxable wages if you paid your state unemployment taxes in full and on time in a state not considered a credit reduction state.
States Without SUTA Tax
Because each state has its own rules and regulations regarding how SUTA is collected, your payroll team must ensure they follow state-specific requirements. This can become quite complicated, especially if your payroll applies to different states. However, in the majority of states, employers pay the SUTA tax without the employee contributing to the deductions. There are a few exemptions where workers must also contribute, including:
- Alaska (0.51%)
- New Jersey (0.425%)
- Pennsylvania (0.06%)
SUTA adds to the complexity of payroll deductions and accurate, compliant withholding and payment processes. Keeping up to date on your state’s current wage bases and understanding your company’s SUTA rate can help ensure you remain compliant. You can also keep your SUTA rate to a minimum by managing your workforce effectively to reduce the risks of layoffs.
However, this can be difficult without the right tools. Payroll and time-tracking software can help you optimize your workforce and catch SUTA and other tax-related mistakes. It also eliminates year-end tax surprises, penalties, and fines that can impact your bottom line.
For more information about PayPro’s payroll software, set up a free consultation with our team here.