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: +1-844-405-0904

Federal unemployment tax (FUTA tax): These taxes go to the federal government’s fund which pays for the government’s oversight for state unemployment insurance programs. For example, If a state has high unemployment in a time of 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 the 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 for 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 stop pricey mistakes. 

Federal Unemployment Tax Liability.

The Federal Unemployment Tax Act (FUTA) imposes a payroll tax on employers, supported the wages they pay to their staff. Not like other payroll taxes, the business itself should pay the FUTA tax. You are doing not withhold 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 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.

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 in the result for a minimum of two calendar years.

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

You have additionally 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 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 who 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 SUTA tax?

Typically in most of the 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 tax 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 obligate 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 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 states unemployment taxes. A few states are obtaining from these trust assets, and a portion of those states don’t reimburse the advances. On the off chance that a state doesn’t reimburse inside 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.

The Bottom Line

Above, we have discussed everything you need to know about the unemployment taxes like What is SUTA tax? or Do employees need to pay the SUTA tax? There are many accounting software in the market that will help you managing and filing 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.

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