How to Calculate and Pay the SUTA Tax

What is the State Unemployment Tax Act (SUTA)?

The State Unemployment Tax Act is a tax that funds unemployment benefits. Employers pay SUTA tax – also called state unemployment insurance (SUI) tax – based on employee wages. Most states require employers to remit SUTA taxes quarterly.

Not all employers are required to pay SUTA taxes. Consider the following instances:

• Nonprofits: If you run payroll for a nonprofit organization, note that some nonprofit organizations can reimburse their state directly for unemployment benefits that former employees go on to use. Check the specific tax requirements in your city and state.
• Independent contractors: Independent contractors are responsible for paying their own taxes. If you have contractors on your team, you don’t have to calculate and pay SUTA tax for them.

New Jersey, Pennsylvania and Alaska are the only three states in which both employers and employees must pay SUTA taxes. If your business operates in one of these states, you must withhold SUTA tax from your employees’ paychecks.

SUTA wage base and rates

Each state determines specific standards for collecting SUTA taxes. The amount you’ll pay depends on your company’s taxable wage base and tax rate.

Wage base limit

Employers pay SUTA tax for each employee according to their state’s wage base, which is the highest amount of an employee’s annual gross income that can be used to calculate SUTA tax. States have different wage bases.

Employers only pay SUTA tax for income up to and including their state’s wage base. For example, North Carolina’s 2024 SUTA wage base is $31,400 annually. If an employee makes $18,000 per year, their taxable wage base is $18,000, and their employer calculates SUTA based on this amount. On the other hand, if an employee makes $60,000, their employer only pays SUTA tax on the maximum amount of $31,400.

Tax rates

The tax rate is also involved in calculating the SUTA tax. Each state sets its own minimum and maximum rate. This range typically changes every year. Several factors determine where your tax rate falls within your state’s range:

• The age of your business. In many states, new businesses are given a standard tax rate. After your business is more than one to three years old (the exact time frame depends on your state), you receive a new tax rate.
• Industry turnover. Some states determine an employer’s SUTA rate based on a business’s industry. For example, due to high construction business turnover rates, construction companies have more expensive SUTA tax rates compared to companies in other industries.
• Unemployment claims. Your tax rate can vary based on how many former employees have filed unemployment claims. This factor is known as your experience rating. The higher your experience rating, the higher your tax rate.

How can I find my SUTA rate?

You can find your annual SUTA rate by contacting your state’s Department of Labor or unemployment website. A Department of Labor website provides a list of contact information for each state to help employers find the appropriate authority to contact.

Example of SUTA tax calculated

To calculate the amount of SUTA tax you must pay for each employee, multiply your tax rate by the taxable wage base of their income.

Here’s an example: Joshua owns a new business in New Jersey. After checking the state of New Jersey’s Department of Labor website, he finds that his 2024 tax rate is 2.92 percent and that New Jersey’s wage base is $42,300. Mark, Joshua’s employee, makes $45,000 annually. Though Mark makes more than the wage base, his taxable wage remains $42,300. This means Joshua’s SUTA tax payment for Mark will be 0.0292 times $42,300, or $1,235.16.

What are my obligations for paying SUTA?

To determine if you are required to pay SUTA tax and submit any attendant reports, take these steps:

• Follow state guidelines. Each state has its own qualifications for employers who must pay SUTA tax. Check with your state unemployment tax office to learn these requirements.
• Fill out the appropriate forms. In addition to filing your SUTA tax return, you’ll need to complete a wage report that details the total amount you paid your employees each quarter. To file your payroll taxes and fill out your report, visit your state’s website and download the SUTA (or SUI) quarterly tax and wage reports.
• Calculate your payment. Determine your business’s SUTA contribution based on your state’s wage base and tax rate. Submit taxes and reports on time. In most states, you’re required to file payroll reports and submit payments each quarter of the calendar year. These documents are due by April 30, July 31, Oct. 31 and Jan. 31. Submit everything on time to avoid late fees and to receive the substantial credit on your federal unemployment tax return for SUTA tax paid.

How do I apply for a SUTA account?

To start paying SUTA tax, you must set up an unemployment insurance tax account through your state. The process may vary by state, but the general steps are as follows:

1. Gather the required information. To complete your application, you need your federal employer identification number (EIN). You should also include the date of your first payroll, business legal structure and Social Security number. If you don’t have an EIN, you can apply for one on the Internal Revenue Service website.
2. Create an online account. The unemployment insurance section of your state’s Department of Labor or unemployment tax office will display a link to an employer portal. Click the link and follow the onscreen prompts to create a username and password.
3. Fill out and submit the forms. Some states allow you to apply for a SUTA account entirely online. Otherwise, you can download an application from the state website. Complete the information and send or deliver the forms to your state’s Department of Labor or unemployment office at the address on your state website.
4. Receive confirmation. After you submit your application, your state will send you a notice stating whether your business is liable to pay SUTA tax. If so, you will receive an employer account number.

Tips for lowering your SUTA rate

While your state’s standards largely determine your SUTA tax payment, you can also influence your rate. Below are some tips to help keep your SUTA rates as low as possible:

• Limit layoffs. The more unemployment claims your business processes, the more your SUTA tax rate will increase. To avoid rate increases, consider alternatives to laying off an employee, like revisiting your budget and cutting business expenses.
• Reduce employee turnover. Businesses with high turnover rates often have high tax rates. Before you start hiring employees, plan to keep employee turnover low by ensuring you need the help you pay for and providing a healthy work environment.
• Make a voluntary payment. Some states allow you to buy down your tax rate. If eligible, you can make a payment to the state that lowers your business’s experience rating and, thus, your tax rate. New employers do not have this option because they’re given a standard rate.

What’s the difference between SUTA and FUTA?

While states use the SUTA tax to fund their unemployment insurance programs, the federal government provides assistance through the Federal Unemployment Tax Act (FUTA). This tax helps all states administer their unemployment insurance and job services programs. During periods of high unemployment, FUTA allows states to borrow from the federal fund to pay benefits.

While some states require employees to pay SUTA tax, only employers must pay FUTA tax. Employers pay this tax annually. The FUTA tax rate is a flat 6 percent, and the federal wage base limit is $7,000. If you pay your SUTA tax in full and on time, you may be eligible for a tax credit that lowers your FUTA tax rate from 6 percent to 0.6 percent.

Consider using payroll software

Contracting with one of the best payroll services or using robust payroll software can help you take the guesswork out of your complex payroll obligations, including accurately handling your SUTA taxes. Consider the following well-regarded options:

• Paychex: Paychex automates local, state and federal tax filings, and includes tax preparation among its robust HR services. Read our detailed Paychex review to learn how the platform can make even complex payroll issues seamless.
• ADP: ADP is a payroll industry stalwart with automated payroll and tax-filing services. It can handle all your SUTA and other payroll tax requirements with ease. Check out our in-depth ADP review to learn more about its payroll processing, payroll tax management, accounting integrations, new-hire reporting and HR services.
• Insperity: Insperity is a PEO with excellent small business resources that take the guesswork out of payroll obligations, including SUTA requirements. Our comprehensive Insperity review explains how the service handles employment verification, payroll management reports, and FICA, FUTA, and SUTA withholding and remittance.

Stay ahead of payroll tax obligations

For businesses hiring their first employees, filing and paying payroll taxes can seem daunting. You must comply with federal, state and even local requirements, and the penalties can be stiff if you miss a filing or payment deadline. It pays to learn about payroll taxes and set up a system to ensure taxes are always paid accurately and on time.

Sally Herigstad contributed to this article.