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SUTA Tax Guide: Who pays? How to calculate it?

After hiring your first employee, you must start making quarterly state unemployment tax (SUTA) payments. Find out what that means for your business.

For any new business, hiring employees is a huge step. It makes everything feel real. If you started as a one-person-does-it-all business, hiring your first employee is a good sign that your business is growing.

When you think about hiring employees, your mind may immediately go to posting an advertisement for the vacancy, interviewing candidates, and training the ones you hire. While these are the initial stages, you will need to start paying them once you have made a successful hire.

Apart from paying the employee, you must also run their payroll and pay taxes. SUTA tax is one such tax that you need to pay the state. Are you wondering what SUTA tax is and how you can calculate it? Here is everything you need to know.

What is the SUTA tax?

SUTA is the acronym used for State Unemployment Tax Act. It is also known as State Unemployment Insurance (SUI) or reemployment tax. This is a type of payroll tax, and the amount collected from you goes into the state's unemployment benefits fund.

If you ever have to lay off an employee and they are unable to find a new job, then the employee can collect unemployment benefits from the state. The SUTA tax you pay goes towards this fund, and it enables the state to pay these benefits to the unemployed population.

The SUTA tax must not be confused with the FUTA tax. The FUTA or the Federal Unemployment Tax Act tax goes towards the federal government's unemployment benefits fund, and the SUTA tax goes towards the state's unemployment benefits fund.

Who Pays The SUTA Tax?

Typically it is the employer's responsibility to pay the SUTA tax. If you have one or more employees in your organization, you need to pay the SUTA tax to the state. You will have to start calculating the payments towards SUTA the moment you hire employees.

Except for Alaska, New Jersey, and Pennsylvania, it is the sole responsibility of the employer to contribute to the state unemployment fund in every other state. However, if your business is located in the three states mentioned above, your employees will also have to pay SUTA taxes.

Certain types of businesses and organizations with employees are exempt from paying SUTA taxes. If you are a non-profit, religious, or educational institution, you will not have to pay SUTA taxes. Certain states also exempt businesses with very few employees from paying SUTA taxes. You will have to check the rules of your state to get an accurate picture.      

How Do You Register for a SUTA Account?

The IRS and the state start considering you as an employer from the moment you make your first hire. It is better to register for SUTA tax to receive your SUTA tax rate immediately and factor that in with other financial calculations.

The exact process for registering for a SUTA account varies from state to state. A vast majority of the states let you complete the process online.

You may have to create an account on your state's SUTA website. You will also need your Employer Identification Number or EIN for registering. Once you register successfully as an employer, you will receive your SUTA tax rate and expected payment schedule.

Most states accept quarterly payments towards SUTA. The exact dates will be given to you upon successful registration.  

How to Calculate The SUTA Tax?

If you are a business owner and employ one or more employees, you should know what the SUTA tax is and how to calculate it. To do so, you need to know your state's SUTA wage base and rates.

SUTA Wage Base

SUTA wage base is the maximum limit of an employee's income that can be subjected to the SUTA tax. If the employee's salary is less than the wage base, then you can calculate the tax using the exact income. However, if the employee's income tax calculation exceeds your state's SUTA wage base, then you will use the wage base for calculation, which will vary from state to state.

SUTA Tax Rate

Just as with the SUTA wage base, the SUTA tax rate also depends on your state. There are also various other factors to consider.

The SUTA tax rate for each state typically is a range. As a new employer, the tax rate you are subject to will differ from that of an experienced employer. Your SUTA tax rate will also depend on the type of business you run. Some businesses, such as construction companies, attract a higher SUTA tax rate.

Your SUTA tax rate will also depend on how often you lay off employees. When you lay off an employee, they may appeal for unemployment benefits from the state. By laying off many people or firing employees at a higher rate than is normal, you are causing an increase in the number of requests for unemployment benefits.

The state responds to this by increasing your SUTA tax rate; you end up paying more towards your SUTA tax for the rest of the employees. Hiring employees with proper qualifications and experience and ensuring that you are only hiring as many as you need are a few ways to reduce the chances of layoffs.

LLC Taxes is what the IRS calls a "pass-through entity," like a partnership or sole proprietorship. The LLC itself does not pay federal income taxes

SUTA Tax Calculation

Now that you know your SUTA wage base and tax rate, it is time to find out how to calculate SUTA tax. The formula for calculating the SUTA tax for each employee is

SUTA tax = min(salary / SUTA wage base) x SUTA tax rate

Since the SUTA wage base is the maximum salary that you must consider while finding out the SUTA tax for an employee, you need to take the minimum of either the wage base or the salary and multiply it with the tax rate.

For example, if your business is in Florida, then the SUTA wage base in Florida is $9,500, and the SUTA tax rate for new employers is 2.7%. Suppose you have two employees - A and B. A receives a salary of $8,000, and B receives a salary of $12,000.

So the SUTA for each will be calculated as:

A : SUTA tax = min( 8000 / 9500) x 0.027 = 8000 x 0.027 = $216

B : SUTA tax = min(12000 / 9500) x 0.027 = 9500 x 0.027 = $256.5

The total SUTA tax you have to pay is the sum of these two or $472.5.

SUTA Rates and Wage Bases by State for 2021

The SUTA tax rates and wage bases vary widely from state to state. They can even change every year. It is pertinent that you check your state's website to find out the current SUTA wage base and tax rate applicable to your business.

How Can Fincent Help?

Paying the right amount as SUTA tax is vital. If you pay less than what is needed, you may face legal action. However, keeping up with the changing wage bases and tax rates can be tiresome. It can take you away from your creative endeavors that will help your business grow.

This is where Fincent can help you. Fincent provides accurate and fuss-free bookkeeping services by industry-leading professionals to ensure that you can focus entirely on scaling your business.

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