Summary: The State Unemployment Tax Act (SUTA) covers the obligation of employers to make contributions under state law for unemployment.

The State Unemployment Tax Act (SUTA) is also sometimes referred to as State Unemployment Insurance (SUI) and works as a payroll tax that employers pay to fund the unemployment benefits for eligible workers who have lost their jobs through no fault of their own. 

The stipulations of SUTA can vary from state to state, so for the benefit of providing the clearest definition, let’s focus on the key aspects of the act that can impact employers and employees alike in the United States.

How SUTA Works

As a contribution-based payroll tax, SUTA works in addition to the Federal Unemployment Tax Act (FUTA) and helps to fund programs and benefits for unemployed citizens. 

The State Unemployment Tax Act is funded entirely by employer contributions in most cases. However, these rules are a little different in certain states. For instance, in Alaska, New Jersey, and Pennsylvania, the responsibility falls on both employers and employees to make contributions. 

The specific SUTA tax rate payable for employers is determined by the state, and your rate can change based on factors such as the industry in which you’re based and your company’s ‘experience rating,’ which refers to the number of former employees who have filed for unemployment benefits. 

Another aspect of SUTA that’s determined by your state is the wage base limit, which is the maximum amount that funding applies to. The wage base limit is set by each state and can change on a yearly basis. 

Additionally, new businesses are generally assigned a standard tax rate for their first one to three years of operation.

The Importance of SUTA

For employers, the State Unemployment Tax Act is a key responsibility that focuses on essential processes such as: 

  • Remittance: This involves the reporting and remittance of the correct tax amount to the state workforce agency. 
  • Record-Keeping: Employers must also track employee payroll data to ensure the proper tax calculation for their SUTA obligations.
  • Managing Claims: Because higher rates of former employees filing for unemployment can increase a company’s SUTA tax rate, it’s important to maintain a stable and content workforce. 

Not all employers are liable to pay SUTA, and certain types of companies, such as nonprofits or charity organizations such as 501(C)(3). Again, laws vary by state, so organizations that are exempt from SUTA may differ depending on jurisdiction.

Calculating SUTA

How can employers calculate their SUTA contributions? SUTA rates can be worked out as the percentage of the prescribed wage base limit, which is the maximum amount of an employee’s gross annual income that can be used. When making these calculations, it’s important to consider the following: 

  • How long the company has been operating
  • The seasonality or turnover of your industry
  • Unemployment claims volumes

The act incentivizes more employers to opt against laying off or firing employees by lowering the tax amounts for businesses with lower staff turnover rates. 

Some states feature different ranges for seasonal industries, so your calculations will depend on your jurisdiction. If you’re unsure, look up your state tax rate on your state’s website.

FAQs

Both SUTA and SUI are the same tax, but because each state sets up its own tax regulations, different jurisdictions refer to SUTA as SUI. Whether your state refers to SUTA as SUI, or contribution tax, reemployment tax, or unemployment benefit tax, they are fundamentally the same.

In some cases, organizations such as government employers and nonprofit religious, charitable, and educational institutions are exempt from SUTA payments. The best way to know if you’re exempt is to check your state’s website for more information.

If your business has multiple locations or employees who work remotely in different states, you’ll need to file in each state where an employee completes the majority of their work. Every employee you have must only be assigned one state for benefits to be paid.