Once you become an employer, you take on many additional responsibilities tied to managing employees. One of these responsibilities includes running payroll. A key aspect of managing your team's payroll is making sure you are withholding the appropriate federal and state taxes, especially state unemployment tax. Whether you are managing your team's payroll on your own or using a top online payroll solution to handle it for you, you should be aware of your state's unemployment tax and how it is calculated.
What is SUTA tax?
The State Unemployment Tax Act (SUTA), also known as state unemployment insurance (SUI) or re-employment tax, is a portion of a business's payroll taxes. Each state determines which employers are required to pay this tax. The purpose of the SUTA tax is to fund the state's unemployment insurance to cover the benefits paid to displaced and unemployed workers.
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Who pays SUTA tax?
In most states, SUTA applies only to employers, not employees. Unlike, for example, Social Security, which is withheld from all employees' paychecks, SUTA is a tax of which employers pay the whole share.
The only states where employees are required to pay unemployment taxes are Alaska, New Jersey and Pennsylvania. Businesses that have employees in these three states must withhold SUTA tax from their employees' wages and pay those collected taxes to the state.
Most employers, including those who have at least one employee, are subject to SUTA taxes. However, there are some exemptions – which vary from state to state – based on how many weeks the employee has been employed.
What is the difference between SUTA and FUTA tax?
The Federal Unemployment Tax Act (FUTA) is a federal payroll tax that employers pay on employee wages. Employees are exempt from FUTA, so they do not pay this tax. The FUTA tax rate is 6% on the first $7,000 of an employee's earnings. The tax does not apply to earnings over $7,000. The maximum FUTA tax an employer is required to pay is $420 per year per employee. FUTA taxes are paid quarterly (four times per year). Insurance premiums and certain fringe benefits are exempt from FUTA.
The SUTA tax is a state tax and is separate from the FUTA tax. However, businesses that pay their SUTA tax on time are eligible to receive a FUTA tax credit of up to 5.4%. This can reduce the employer's total FUTA liability to 0.6%.
What is the SUTA wage base?
Each state determines its SUTA tax wage base each year. The wage base is the maximum amount (or threshold) of an employee's income that the state can tax within a calendar year. Employers pay taxes from an employee's wages until they meet this wage base.
All employers in the same state have the same SUTA wage base. For example, in 2021, employers in Washington have a SUTA wage base of $52,700. All nonexempt employers in Washington must pay SUTA tax on all of their employees' wages until each employee earns this amount.
SUTA wage base by state
Below is each state's wage base for 2021.
- Alabama: $8,000
- Alaska: $43,600
- Arizona: $7,000
- Arkansas: $10,000
- California: $7,000
- Colorado: $13,600
- Connecticut: $15,000
- Delaware: $16,500
- District of Colombia: $9,000
- Florida: $7,000
- Georgia: $9,500
- Hawaii: $47,400
- Idaho: $43,000
- Illinois: $12,960
- Indiana: $9,500
- Iowa: $32,400
- Kansas: $14,000
- Kentucky: $11,100
- Louisiana: $7,700
- Maine: $12,000
- Maryland: $8,500
- Massachusetts: $15,000
- Michigan: $9,500
- Minnesota: $36,000
- Mississippi: $14,000
- Missouri: $11,000
- Montana: $35,300
- Nebraska: $9,000; $24,000*
- Nevada: $33,400
- New Hampshire: $14,000
- New Jersey: $36,200
- New Mexico: $27,000
- New York: $11,800
- North Carolina: $26,000
- North Dakota: $38,500
- Ohio: $9,000
- Oklahoma: $24,000
- Oregon: $43,800
- Pennsylvania: $10,000
- Puerto Rico: $7,000 (2020)
- Rhode Island: $24,600; $26,100**
- South Carolina: $14,000
- South Dakota: $15,000
- Tennessee: $7,000
- Texas: $9,000
- Utah: $38,900
- Vermont: $14,100
- Virgin Islands: $32,500
- Virginia: $8,000
- Washington: $56,500
- West Virginia: $12,000
- Wisconsin: $14,000
- Wyoming: $27,300
* Nebraska's standard wage base is $9,000, while the wage base for experienced employers is assessed at $24,000.
**Rhode Island has a two-tier wage-based system. The first number indicates the wage base for the majority of employers in Rhode Island, while $26,100 is the highest assessed rate.
What are SUTA tax rates?
The other key component to calculating your SUTA tax is the tax rate. Similar to the wage base, the tax rate varies from state to state. Further, the tax rate may vary for each business. When starting a new business, employers are subject to the new employer SUTA tax rate. Once a business becomes more established, the state assigns it a new tax rate within its employer tax rate range.
Some states also base SUTA tax rates on the industry. Companies in construction industries tend to pay higher SUTA tax rates than companies in non-construction industries. For example, in Ohio, new construction employers pay a SUTA tax rate of 5.8% in 2021, while the new employer SUTA tax rate is 2.7%.
Here are the new employer tax rate and the standard employer tax rate ranges for each state. Due to COVID-19, some states have yet to release their 2021 tax rates.
| State | SUTA New Employer Tax Rate | Employer Tax Rate Range (2021) |
|---|---|---|
| Alabama | 2.70% | 0.65% - 6.8% |
| Alaska | 2.57% (2.07% comprises employer share; 0.50% comprises employee share) | 1.5% - 5.9% |
| Arizona | 2.00% | 0.08% - 20.6% |
| Arkansas | 3.10% | 0.30% - 14.2% |
| California | 3.40% | 1.5% - 6.2% |
| Colorado | 1.70% | 0.71% - 9.64% |
| Connecticut | 3.00% | 1.9% -- 6.8% |
| Delaware | 1.80% | 0.3% - 8.2% |
| District of Columbia | 2.7% or average rate of employer contributions in the preceding year (whichever is greater) | N/A |
| Florida | 2.70% | 0.29% - 5.4% |
| Georgia | 2.70% | 0.04% - 7.56% |
| Hawaii | 5.20% | 0.01% - 6.6% |
| Idaho | 1% | 0.207% - 5.4% |
| Illinois | 3.18% | 0.2% - 6.4% |
| Indiana | 2.50% | 0.5% - 7.4% |
| Iowa | 1.00% | 0.0% - 7.5% |
| Kansas | 2.70% | 0.2% - 7.6% |
| Kentucky | 2.70% | 1.0% - 10% |
| Louisiana | Varies | 0.09% - 6.2% |
| Maine | 2.31% | 0.69% - 6.01% |
| Maryland | 2.60% | 2.2% - 13.5% |
| Massachusetts | 2.42% | N/A |
| Michigan | 2.70% | 6.8% - 8.1% |
| Minnesota | Varies | 0.1% - 0.5% + experience rating |
| Mississippi | 1.0% (first year), 1.1% (second year), 1.2% (third year) | 0.0% - 5.4% |
| Missouri | 2.38% | 0.0% - 6.0% |
| Montana | Varies | 0.0% - 6.12% |
| Nebraska | 1.25% | 0% -5.4% |
| Nevada | 2.95% | 0.25% - 5.4% |
| New Hampshire | 2.70% | N/A |
| New Jersey | 2.8% (0.425% comprises employee share) | 0.4% - 5.4% |
| New Mexico | 1.0% or industry average rate (whichever is greater) | 0.33% - 5.4% |
| New York | 3.13% | 0.6% - 7.9% |
| North Carolina | 1.00% | 0.06% - 5.76% |
| North Dakota | 1.02% (positive balance), 6.09% (negative balance) | 0.08% - 9.69% |
| Ohio | 2.70% | 0.3% - 9.3% |
| Oklahoma | 1.50% | 0.3% - 7.5% |
| Oregon | 2.60% | 1.2% - 5.4% |
| Pennsylvania | 3.69% | 1.2905% - 9.9333% |
| Rhode Island | 1.16% | 1.2% -9.8% |
| South Carolina | 0.55% | 0.06% - 5.46% |
| South Dakota | 1.20% | 0% - 9.5% |
| Tennessee | 2.70% | 0.01% - 10% |
| Texas | Varies | N/A |
| Utah | Varies | 0.2% - 7.2% |
| Vermont | 1.0% (most employers) | 0.4% - 5.4% |
| Virginia | 2.50% | 0.1% - 6.2% |
| Washington | Varies | 0.0% - 6.86% |
| West Virginia | 2.7% (most employers) | N/A |
| Wisconsin | 3.05% (payroll < $500,000), 3.25% (payroll > $500,000) | 0% - 12% |
| Wyoming | Varies | 0.48% - 9.78% |
How do you calculate SUTA tax?
To calculate your SUTA tax as a new employer, multiply your state's new employer tax rate by the wage base.
For example, if you own a non-construction business in California in 2021, the SUTA new employer tax rate is 3.4%, and the taxable wage base per worker is $7,000. Therefore, you must pay $238 (0.034 x $7,000) per employee.
The same calculations are done for businesses that are assigned an established business tax rate. Multiply the tax rate by the taxable wage base.
How do you set up and pay SUTA tax?
While each state has its own process for registering as a new employer and setting up a state unemployment tax account, there are some key items nearly all states require, including:
- An employer identification number (EIN): An EIN enables the IRS to identify your business on tax returns.
- Enrollment in the Electronic Federal Tax Payment System (EFTPS): The EFTPS allows employers to pay employment taxes online or over the phone.
- A new hire reporting account: This enables the government to gather information to collect child support, identify fraudulent recipients of unemployment insurance and prevent unlawful welfare assistance.
- Proof of workers' compensation insurance: This insurance policy helps employees who have been injured on the job with wage protection and medical benefits.
Each employer is responsible for reporting their SUTA tax liability to their respective state and making tax payments. Those payments can often be paid electronically. You are best served checking with your state to learn about specific payment instructions.