SUTA tax meaning: Quick guide and calculation

People Ops work extends far beyond keeping employee morale high and turnover low. People teams are also responsible for paying employees compliantly, accurately applying complex state and federal tax rules to each paycheck. For US employers, this includes understanding payroll taxes like SUTA. 

This guide explains the meaning of SUTA tax, who makes the contribution, and how to calculate withholdings.

What is SUTA tax?

SUTA stands for State Unemployment Tax Act, and the corresponding SUTA tax is a US payroll tax that funds state unemployment insurance programs and benefits. Contributions go into the state’s unemployment fund, which provides income support for displaced workers. When someone eligible for unemployment benefits loses their job, they receive payments from this state-level fund.

The US also has a federal-level unemployment tax under the Federal Unemployment Tax Act (FUTA) that supports state unemployment programs. FUTA ensures that states have sufficient reserves to cover unemployment benefits.

SUTA vs. SUI contributions: Is there a difference?

SUTA and State Unemployment Insurance (SUI) contributions refer to the same concept: taxes that fund a state’s unemployment insurance program. State websites and documents may use these terms interchangeably, which causes confusion, but they are synonymous.

The only real difference lies in semantics. SUTA is the abbreviation for the tax act that defines SUI contributions. So, SUTA is a legal description, while SUI is a payroll tax term.

Who pays SUTA tax?

Employers—not employees—contribute to SUTA taxes, with a few exceptions. In Pennsylvania, Alaska, and New Jersey, both employers and employees pay state unemployment tax.

If you employ people in different US locations, you must remit SUTA contributions to the states where employees live. The contribution amount will vary based on each state’s different methods and determiners.

What is the SUTA tax rate?

SUTA taxation rates vary by state, so there’s no universal figure that applies to all employers. Plus, each state uses distinct factors to calculate an employer’s SUTA rate, which may include:

• The organization’s unemployment claims history
• The organization’s annual taxable payroll
• The organization’s reported taxable wages
• The organization’s historical SUTA contributions
• The state’s taxable wage base
• The state’s minimum and maximum SUTA rates
• Any state-specific surcharges for organizations that consistently pay the state’s maximum SUTA rate 

How to calculate SUTA tax

There isn’t a single, standard way to calculate SUTA tax. Every state determines SUTA contributions differently for its employers. Use your state-assigned rate and the state’s taxable wage base to calculate contributions.

Use these steps to estimate SUTA contributions.

1. Determine your state-assigned SUTA rate

If you’re a new employer, contact your state’s workforce services commission or similar entity to register and get the new employer unemployment tax rate. New employer tax rates aren’t variable, as organizations don’t have enough history for the state government to calculate an experience-based rate.

Established companies receive a rate based on the state’s “experience rating” method, which may be updated annually or on another state-specific schedule. Get familiar with your state’s update cadence to anticipate changes to your assigned rate.

2. Learn your state’s taxable wage base

Find out your state’s taxable wage base by checking the state labor department’s website, contacting the department directly, or consulting a reliable US-wide taxable wage base table. This wage base is the maximum taxable amount of an employee’s salary for unemployment purposes.

3. Determine each employee’s taxable wage base

Employers only pay taxes on wage bases, and not on amounts over it. For example, if a state has a taxable wage base of $60,000, but an employee earns $80,000, the remaining $20,000 is not subject to SUTA taxation. However, if any employee earns $55,000, that total amount is taxable, since it’s under the $60,000 wage base.

4. Calculate SUTA per employee

After determining the taxable amount of each employee’s income, multiply this amount by the SUTA rate to estimate per-person contributions. For example, if your organization has a SUTA rate of 3% and an employee earns $55,000 (within the state’s wage base), the calculation looks like this:

Taxable wages x SUTA rate = SUTA owed 

In this case:

55,000 x 0.03 = ​​1,650

So your organization owes $1,650 in SUTA tax for this employee. Use this method to calculate the SUTA amount for each employee.

5. Add up totals for the filing period, report, and pay

Add up the amount of tax you owe for each employee to estimate the total SUTA contribution. For example, if the calculated SUTA contributions for three employees are $1,650, $2,000, and $1,250 respectively, you’d owe a total of $4,900 in SUTA contributions. Report and pay this amount by the state’s mandatory filing deadlines.

Who is exempt from SUTA and FUTA?

Organizations that don’t pay income tax under section 501(c)(3) of the Internal Revenue Code — such as charities, nonprofits, and religious groups — don’t pay FUTA taxes, either. However, organizations exempt from FUTA taxes aren’t automatically exempt from state obligations. 

State contribution laws function differently from federal ones. Often, non-profits, religious organizations, domestic or agricultural employers, and very small businesses qualify for state-level exemption, but only if they meet specific requirements. For example, some states, like Missouri, exempt businesses that pay under a specified amount in wages to one or a few employees within a defined period.

To find out whether your organization is exempt, check your state’s unemployment insurance laws instead of trusting generalized, high-level information on federal guidance.

Simplify multi-location payroll compliance with Oyster

Single-location employers often have to make complicated SUTA calculations to run compliant payroll. The complexity only increases for multi-location organizations with employees subject to a range of unique SUTA rates.

Simplify your payroll process with Oyster, a global HR platform that keeps you compliant. Oyster’s in-house legal team and regional specialists guide your People Ops team through the trickiest tax calculations to give you error-free paydays. Consult Oyster’s experts to protect your organization from penalties and valuable time lost to redundant work.