What Is the SUTA Tax? State Unemployment Taxes, Explained
State unemployment taxes must be deducted by employers from wages to fund unemployment benefits. In some states, employees also pay a portion of this tax. What is SUTA tax?
If you’re a business owner, it’s important to consider expenses besides paying employees’ salary and wages. Employers must pay the required unemployment taxes on behalf of each employee. This money, known as the State Unemployment Tax Act (SUTA) tax, is used to pay unemployment benefits. What is the SUTA tax and who is responsible for it?
The SUTA tax is a type of payroll tax, deducted from paychecks and remitted to the government. In the case of the state unemployment tax, this is a deduction made by employers to states to fund benefits to displaced workers. According to the IRS, most employers must pay both a federal and a state unemployment tax.
Who pays SUTA tax?
The SUTA tax is paid by employers on behalf of their employees. In some states, employees must also pay a portion of their unemployment taxes. Businesses that are exempt from paying state unemployment taxes are those that are classified as 501(c)(3)s.
The money from unemployment tax funds goes to pay out benefits for a set period of time to unemployed workers. Some states call this by a different name than the SUTA. For example, in Florida this tax is called the Reemployment Tax, and in a few states it goes by State Unemployment Insurance, or SUI.
Other types of payroll taxes typically deducted from salaries and wages are the federal payroll taxes that fund Social Security and Medicare.
Calculating SUTA tax is different in each state.
Each of the states sets its own SUTA tax rate and the taxable wage base. The taxable wage base is the maximum amount of income that is taxed. So, beyond that threshold, the employee’s wages wouldn't be taxed for SUTA purposes.
To calculate the SUTA tax, multiply the state’s unemployment tax rate by the taxable wage base. First, you'll need to register as an employer to find out what your rate is (it may vary by industry or be based on whether you're a new employer).
The taxable wage base can change from one year to the next, so employers should stay up-to-date on any changes to that rate and make adjustments to deductions accordingly.
Several states increased their unemployment tax rates for 2022.
A number of states have raised their unemployment tax rates for 2022, including Illinois, Colorado, and Kentucky. Some states have kept unemployment tax rates level but raised the state taxable wage base.
States that raised unemployment tax rates for 2022 and their new ranges include:
Arizona: 0.08–20.93 percent
Colorado: 0.75–10.39 percent
Idaho: up by 3 percent to a range of 0.252–2.352 percent
Illinois: 0.725 percent to 7.625 percent
Kentucky: 0.5 to 9.5 percent
Louisiana: slight increase
Minnesota: 2.9 percent increase (up to 8.9 percent)
New Jersey: 0.5 to 5.8 percent
Ohio: up to 10.2 percent
Utah: 0.3 to 7.3 percent
Vermont: for fiscal year 0.8 to 6.5 percent
Washington: increased lowest rate to 0.33 percent
States that raised the taxable wage base, and the new levels:
New Jersey: $39,800
New Mexico: $28,700
New York: $12,000
North Carolina: $28,000
Rhode Island: $25,200