What is State Unemployment Taxes (SUTA) & Do Employees Need to Pay them?

Do you know, what is state unemployment taxes (SUTA) & Do Employees need to pay them? This article is to help you out in this situation, There are two types of unemployment taxes first is the Federal Unemployment Taxes (FUTA tax), and the second is State Unemployment Taxes (SUTA tax).  In this article, we will explain to you what it is, Federal Unemployment tax liability, how SUTA works, & who pays it. Go through the article and get all your queries resolved. For more info contact us toll-free: [QuickBooks]

Types Of Unemployment Tax

Federal unemployment tax (FUTA tax): These taxes go to the federal government’s fund which pays for the government’s oversight of state unemployment insurance programs. For example, If a state has high unemployment in a time period and a state might not have enough money to pay unemployment benefits. In that situation, the state can borrow money from the federal government’s unemployment fund.

State unemployment tax (SUTA tax): The State Unemployment Tax Act, also known as SUTA, is a kind of payroll tax that employers need to pay on the account of their employees, and this tax directly goes into the State Unemployment fund. According to the rules and regulations of some states, both employers and employees need to pay the SUTA taxes as well. These funds are used for the financial support of unemployed persons.

What is the State Unemployment Tax Act (SUTA)?

State Unemployment taxes are payable on the basis of the type of business. It is a kind of payroll tax paid to the state government by employers who have unemployed employees from a job in order to fund out-of-work employees. This article is brought to you by our QuickBooks technical support team. If you need any further assistance regarding QB, you can dial the contact support team to resolve it.

The Act under which this type of tax comes under in commonly known as SUTA (State Unemployment tax act) which is a counterpart of FUTA (federal unemployment insurance program).

Unemployment taxes should be rigorously tracked and paid by the business to the Internal Revenue Service. Several small businesses pay each a federal and state tax, therefore it is important to understand the fundamentals of this taxation.

In any business, the amount of tax you have to pay depends on several important factors. If you would not identify these factors then you may lose your deductions and tax credits. Gaining an understanding of the fundamentals of business taxes could facilitate stopping pricey mistakes. 

Federal Unemployment Tax Liability.

The Federal Unemployment Tax Act (FUTA) imposes a payroll tax on employers, supporting the wages they pay to their staff. Not like other payroll taxes, the business itself should pay the FUTA tax. You are not withholding the FUTA tax from an employee’s wages.

If you need to pay the FUTA tax in your business then you need to try to meet either of the subsequent tests:

  • You need to pay at least totaling pay wages of $1,500 to our workers in any quarter.
  • At least you have one employee on any day in each of the 20 different calendar weeks.

How Suta works?

SUTA might be a program that is funded by employers in each state, and so the state advantages are processed by a state agency. The Department of Labor provides tips that every state should follow.

The company’s assessment predicates its expertise rating. Set by a quantity of former staff who file for state edges. There are two different factors that confirm the tax calculation. First the wage base and therefore the tax rate.  Each and Every state sets a variety of tax rates for state taxes. So the tax rates assigned to some selected firm is mentioned because of the assessment.

Filing an election for optional coverage:-

You can submit an election at any time. However, coverage won’t become effective till the primary day of the calendar quarter following the calendar quarter during which the election of coverage was approved. When an election has been approved. It should keep the result for a minimum of two calendar years.

Impact on your business if you are doing not elect for optional coverage: –

You have the additional right to elect for facultative coverage for a noncovered owner/officer, you must not report wages paid to those people on quarterly wage detail reports or pay Minnesota UI tax on their wages. This is applicable solely to Minnesota state tax

You should contact your accountant or tax adviser to obtain more information on:

  • What impact this transformation could wear different employment taxes, like the federal unemployment tax (FUTA).
  • How the exclusion of those owner/officer wages from Minnesota UI tax could increase your FUTA liabilities.

Calculating the SUTA tax

Let’s have a look at how to calculate the SUTA tax for an enterprise or company. For example, if you are running a small business in Texas with 6 employees in your company. In Texas, the taxable wage of the employees is $9000 and the tax rates range is from 0.36% to 6.36%. Here, we’re presuming that the business has quite a good estimation and your SUTA tax rate is around 2.7%. You can calculate your SUTA tax by using the formula mentioned below.

($9000 taxable wage base x 2.7% tax rate) x 6 Number of employees = $1458 SUTA taxes.

Other terminology used for SUTA

Every state does not refer to this Tax as SUTA. Another common terminology used for this tax is State unemployment insurance, also known as SUI. Some state uses their own unique term like Florida which refers to it as Tax Re-employment Tax.

Who Pays Unemployment Taxes?

As we mentioned above, we know there are two types of unemployment taxes, the first is the State Unemployment Taxes (SUTA) and the second is the Federal Unemployment Taxes (FUTA). Now, we are going to discuss who pays the SUTA and FUTA taxes.

Who Pays the SUTA tax?

Typically in most states, only employers have to pay the SUTA tax. But, in three states (Alaska, New Jersey, and Pennsylvania) employees also need to pay the SUTA tax. In these three states, employers need to deduct these taxes from the employee’s wage and then pay the tax to the state. Employees are not responsible for filing the tax on their own.

Some states are making exceptions for some businesses or organizations in paying SUTA tax. For example, a state might exclude Non-profit organizations or small businesses with less number of employees. Exceptions vary from state to state, you may want to read state tax laws before filing.

Who Pays FUTA tax?

Unlike SUTA, only employers need to pay the FUTA taxes. You are obligated to pay the FUTA tax if,

  • If you are paying $1500 or more to the employee in a calendar quarter, or
  • If you had an employee for a part of a day for the 20 different weeks of a calendar year.

Some employers can get an exemption from the FUTA tax, even if they are meeting any one of the above-listed criteria. Businesses or organizations that fall under the 501(c)3 status are exempt from the FUTA tax. And another example is when you hire your parent, spouse, or child who is less than 21 years old then their wages will be exempt from FUTA tax.

How Unemployment tax affected my payments as an employee?

The IRS has an Unemployment charge trust fund to pay the costs of administering the federal and state unemployment taxes. A few states are obtaining these trust assets, and a portion of those states don’t reimburse the advances. On the off chance that a state doesn’t reimburse within two years, bosses in the state might be required to cover extra joblessness regulatory expenses.

The 5.4 percent credit for state FUTA assessment might be diminished by 0.3 percent every year. In this way, for the principal year, your credit would be just 5.1 percent and your all-out FUTA charge rate would be 6.3 percent rather than the run-of-the-mill 6 percent. Check with your state’s joblessness department to check whether you are in a state with decreased credits. This rundown changes each year.

If you are not able to find the SUTA information of your state. You can also try to search them using different terms like SUI, reemployment tax, or unemployment insurance.

How to apply for a SUTA account

You must open an unemployment insurance tax account with your state in order to begin paying SUTA tax. The process may differ by state, but follow these steps to apply for a SUTA account.

  • Collect the necessary data: You’ll need your federal employment identification number to complete your application which is also known as EIN. Include the date of your first payroll, the kind of your company, and your Social Security number as well.
  • Open an account online: An employer portal link will be visible on the unemployment insurance page of your state’s labor department or unemployment tax office. Click on the link and follow the instructions shown on the screen to create a username and password.
  • Download applications: Then the next is to finish your application based on the information you provided for that you’ll get the forms. Download it and fill out these documents.
  • Send your application back: Now after doing the above steps, you have to send the complete paperwork or forms that you filled out to the unemployment office or labor department in your state. The location ought to be listed on the webpage for your state.
  • Receive confirmation: Your state will notify you following the submission of your application if your company must pay SUTA tax. If so, an employer account number will be sent to you.

The Bottom Line

Above, we have discussed everything you need to know about the unemployment taxes like What is SUTA tax? is or Do employees need to pay the SUTA tax? There are many accounting software in the market that will help you manage and file these taxes. QuickBooks Payroll is one of them, that offers many tools to help businesses.

To know more about how QuickBooks Payroll can help in your business, then you can contact our team of QuickBooks ProAdvisor through 24/7 toll-free numbers in +1-844-405-0904.

Call Now