If you’re an employer, the phrase “SUTA tax” may sound familiar. If you’re an employee, the term might sound strange, because SUTA tax is primarily an employer-paid tax. As of 2012, only three states say employees must also pay this tax. SUTA stands for State Unemployment Tax Act, which authorizes its collection.
Since SUTA is mandated on a state level, taxation and benefits eligibility rules vary by state. The tax that an employer pays is put into a trust fund so when eligible employees are out of a job they can get financial relief for a certain period of time. Though state laws vary, most employers must pay SUTA tax. Let’s say your business is in Georgia. If your quarterly payroll equals at least $1,500 or you had at least one employee in 20 different weeks for the year, you must pay SUTA tax.
Your SUTA rate typically depends on whether you’re a new employer and your unemployment history, including the number of former employees that have drawn benefits on your account. Whether you’re a construction or non-construction employer could also make a difference. Let’s assume your business is in Ohio. As of 2012, you would pay 2.7 percent if you’re a new employer and 7 percent if you’re a construction employer. Based on your unemployment history, your rate could go as low as 0.7 percent or as high as 9.1 percent.
If you’re an employee who doesn’t work in Pennsylvania, New Jersey or Alaska, then you’ve escaped paying state unemployment tax. As of 2012, Pennsylvania takes 0.08 percent, Alaska requires 0.66 percent, and New Jersey wants 0.3825 percent.
Annual Wage Base
States cap the amount of wages on which an employer must pay SUTA tax, as well as the amount applicable employees must pay for the year. In Arizona, the first $7,000 paid to each employee is taxable, as of 2012. In Georgia, it’s the first $8,500; and in Missouri, it’s the first $13,000. When an employer meets the annual wage base for an employee, it doesn’t owe any more tax for that employee for the year.
An employer pays SUTA tax and any employee withholding to the state unemployment or workforce agency. It also files wage reports with the department, usually quarterly, to indicate wages paid and its tax liability for the reporting period.
The Federal Unemployment Tax Act authorizes FUTA tax, and the federal government works with state unemployment agencies to provide unemployment benefits to eligible workers. If you’re an employer, chances are you must pay FUTA tax. If you pay your SUTA tax in full, on time, and if the state doesn’t owe the federal government for borrowed unemployment funds, you may take a credit of up to 5.4 percent against your federal unemployment tax.
- U.S. Department of Labor: State Unemployment Insurance Benefits
- Ohio Department of Job and Family Services: Contribution Rates
- U.S. Department of Labor: Frequently Asked Questions
- Payrolltaxes.com: Pennsylvania State Tax Information
- Payrolltaxes.com: Alaska State Tax Information
- Payrolltaxes.com: New Jersey State Tax Information
- American Payroll Association: State Unemployment Insurance Taxable Wage Bases 2010 - 2013
- Internal Revenue Service: Circular E, The Employer's Tax Guide
Grace Ferguson has been writing professionally since 2009. With 10 years of experience in employee benefits and payroll administration, Ferguson has written extensively on topics relating to employment and finance. A research writer as well, she has been published in The Sage Encyclopedia and Mission Bell Media.