State Unemployment Tax Act (SUTA) is a specific type of payroll tax every employer must pay. The SUTA taxes paid by the employer goes to the unemployment insurance fund and are used to support unemployed workers.
Usually, employees who lose their jobs without any viable reason get financial support from the fund generated by the SUTA tax.
Although Federal Unemployment Tax Act (FUTA) is quite similar to SUTA, both of these acts have significant differences.
SUTA and FUTA are special unemployment tax funds, but different authorities control them. The taxes collected from FUTA goes to the federal government, which manages the national unemployment fund.
On the other hand, the SUTA taxes only focus on improving the unemployment condition in a particular state. Every state in the US has a separate unemployment fund collected from SUTA taxes.
Every state follows different rules and regulations in paying SUTA taxes. In most states, only employers are instructed to pay SUTA taxes.
On the contrary, states like Pennsylvania, Alaska, and New Jersey require employers and workers to bear the SUTA taxes. It means employers in those states must cut a certain portion of their wages.
Every state in the US imposes a different tax rate for each employer in order to collect unemployment insurance funds. This rate is called the SUTA tax rate, and every year and this rate is adjusted for various reasons.
SUTA rate can vary from one employer to another based on experience, competence, and reputation. For instance, companies with a high turnover rate might have a higher SUTA rate.
For SUTA, the wage base means the highest amount of taxes an employer can withhold from a worker’s salary. Just like the SUTA rate, every state sets a certain amount of wage base that all employers have to follow.
If you know the SUTA rate and wage base of a particular state, you can easily calculate the SUTA tax of that state.
For example, the SUTA rate in California is 3.4%, and the wage base is set at $7,000. Therefore, it indicates that a worker's first $7,000 of earnings can apply to the SUTA tax of 3.4%.
So, the SUTA in California is:
0.034 x 7000 = $238 per employee
Although SUTA and SUI might sound different, SUI is basically the implementation of SUTA in a different state.
Many states have the same concept of SUTA but under a different name, like Reemployment Tax or State Unemployment Insurance (SUI).
Even though they have different names, their functions are technically the same as these taxes collect funds to help displaced workers.
Only the workers who are victims of layoffs or unfair termination should be eligible to get benefits from FUTA and SUTA funds.
Unfortunately, that means workers who willingly quit their positions will not be able to get financial benefits from these unemployment funds. Workers who get fired for their own fault or gross misconduct will also not be eligible for the fund.
Besides, certain types of businesses are often considered exempt from the SUTA taxes. For instance, various nonprofit organizations don’t have to pay SUTA or FUTA taxes. But these exemptions can differ from a different state and are often subject to change.
State Unemployment Tax Act (SUTA) is an essential term that allows displaced employees to get financial help.
For a new employer, it’s also essential to learn the amount of money they have to pay as a part of the SUTA tax. That’s why having proper knowledge about SUTA can be beneficial to both the worker and the employee at the same time.