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What is SUTA Tax?

This article deconstructs the State Unemployment Tax Act (SUTA) to help you understand payroll duties. It seeks to provide complete understanding to employers, whether managing in-house or outsourced, by covering its objective, employer liability, calculation elements, and the filing/payment method.
what is SUTA Tax
What is SUTA Tax?
Understanding the State Unemployment Tax Act (SUTA) is essential for navigating payroll complications, including its purpose, obligation, computation, and filing procedures, whether you are self-managing or utilizing an outsourced agency.
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A significant part of managing employees is managing payroll, including withholding taxes, especially state unemployment taxes. Managing your team’s payroll is crucial, especially if you are using an outsourced payroll provider. It’s critical to understand the unemployment tax in your state, whether you handle it yourself or hire an outsourced payroll provider. So, what is SUTA Tax? Let us learn more about it in detail.

What is the SUTA Tax?

The State Unemployment Tax Act refers to the payroll tax for state unemployment benefits. SUTA tax is one of the most common names for this tax, but it may also go by other names depending on your state.

  • State unemployment insurance (SUI)
  • Reemployment tax
  • Employment security tax

Purpose of SUTA Tax

States require employers to pay the State Unemployment Tax Act (SUTA) tax as a type of payroll tax. Unemployment insurance benefits are paid out by states using funds generated by the State Unemployment Tax Act (SUTA). The SUTA tax funds the state’s unemployment insurance to pay for the benefits paid to unemployed and displaced workers.

Employer Liability for SUTA Tax

Most states have SUTA taxes as an employer-only tax, but Alaska, New Jersey, and Pennsylvania also require employees to pay SUI taxes. Employers should be aware of the SUTA tax wage base and unemployment tax rates when it comes to SUTA tax. The number of employees and wage paid to employees during the quarter determine whether you are liable for withholding SUTA tax.

Who Pays SUTA Tax?

Employers usually pay SUTA tax. Alaska, New Jersey, and Pennsylvania are the only states requiring employees to pay unemployment taxes. Businesses with employees in these three states must withhold the tax from their employee’s wages and deliver it to the state.

How Is SUTA Calculated?

Your state’s new employer tax rate multiplied by the wage base is how you calculate the SUTA tax. Using the same formula, multiply the tax rate by the taxable wage base for businesses assigned an established business tax rate.

Factors Affecting SUTA Tax Rate

Factors affecting SUTA tax rates include:

New Employers

Business age plays an important role when it comes to SUTA tax rates. New employers will need more employment history to qualify for the top rate based on turnover or unemployment claims.

Employer’s Industry

State unemployment insurance policies may also be based on a business industry. For instance, the construction industry sees a high turnover rate (and, therefore, more unemployment insurance claims).

History of Turnover/Unemployment Claims

The SUTA tax rate will depend on how many unemployment claims have been filed by former employees in the last years, as well as the turnover history of the business.

How To File and Pay SUTA Taxes

There are certain essential items nearly all states require when setting up a state unemployment tax account and registering as a new employer, including:

An employer identification number (EIN)

A business’ EIN enables the IRS to identify it on tax returns.

EFTPS or Enrollment in the Electronic Federal Tax Payment System 

EFTPS allows employers to pay employment taxes online or by phone.

A New-Hire Reporting Account

Information obtained from this system can be used to collect child support, identify fraudulent unemployment insurance recipients, and prevent unethical welfare assistance.

Proof of Workers’ Compensation Insurance

The goal of workers’ compensation insurance is to give wage protection and medical benefits to employees who have been injured at work.

Employers are accountable for reporting their SUTA tax liability to their respective states and making payments to the state.

  • Register with your state’s unemployment insurance department. 
  • Report wages monthly.
  • Calculate your quarterly SUTA tax due.
  • Pay SUTA tax quarterly. 

SUTA taxes must be paid, returns must be filed once registered with your state, and your employer tax number is received. Your state will determine the exact filing and payment requirements, but most states require you to file a yearly return and pay quarterly. 

Conclusions

Hiring a new employee is an exciting and vital step in the startup life cycle. However, as a new employer, you must pay SUTA taxes. Although the tax can seem daunting, it is part of the regular payroll process for businesses of all sizes. Compliance with your SUTA requirements will be easier if you stay informed of your state’s rules and regulations. Check out Beem Tax Calculator to get a quick and accurate estimate of your federal and state tax refund.

FAQ’s

What does SUTA mean?

SUTA stands for the State Unemployment Tax Act. The SUTA tax is a required payroll tax that all employers must pay, and the money goes into the state unemployment fund.

Is SUTA payable a liability?

SUTA Payable is classified as part of current liabilities.

How much is SUTA in Texas?

The tax rates for experienced employers range from 0.23% to 6.23%, including a 0.13% replenishment tax and a 0.1% employment training and investment assessment.

Is SUTA payable by debit or credit?

When SUTA is recognized during a pay period, it is included as a debit with payroll expenditures, and the amount payable is credited to SUTA Payable.

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This page is purely informational. Beem does not provide financial, legal or accounting advice. This article has been prepared for informational purposes only. It is not intended to provide financial, legal or accounting advice and should not be relied on for the same. Please consult your own financial, legal and accounting advisors before engaging in any transactions.

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