Managing employees incurs significant responsibilities, and that includes running payroll. A crucial aspect of managing your team’s payroll is ensuring you withhold the appropriate federal and state taxes, especially state unemployment tax. Whether you handle payroll on your own or use an outsourced payroll provider, you need to understand your state’s unemployment tax and how it’s calculated.
The State Unemployment Tax Act (SUTA) tax, also known as state unemployment insurance (SUI) or reemployment 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.
In most states, SUTA applies only to employers, not employees. Unlike, for example, Social Security, which is withheld from all employees’ paychecks, employers usually pay all SUTA taxes.
The only states that require employees to pay unemployment taxes are Alaska, New Jersey and Pennsylvania. Businesses with 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 with at least one employee, are subject to SUTA taxes. However, some exemptions — which vary from state to state — exist based on how many weeks a team member has been employed.
Some organizations are exempt from paying SUTA in certain states. For example, certain nonprofits, government entities, religious institutions and educational organizations do not have to pay SUTA taxes and other payroll liabilities.
The Federal Unemployment Tax Act (FUTA) is a federal payroll tax employers pay on employee wages. Employees are exempt from FUTA, so they do not pay this tax. The FUTA tax rate is 6 percent 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 percent. This can reduce the employer’s total FUTA liability to 0.6 percent.
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 2023, employers in Washington have a SUTA wage base of $67,600. All nonexempt employers in Washington must pay SUTA tax on all of their employees’ wages until each employee earns this amount.
Below is each state’s wage base for 2023.
* 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 $29,700 is the highest assessed rate.
The other key component in calculating your SUTA tax is the tax rate. Like 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 the construction industry tend to pay higher SUTA tax rates than companies in the nonconstruction industry. For example, in Ohio, new construction employers pay a SUTA tax rate of 5.6 percent (as of 2023), while the new employer SUTA tax rate is 2.7 percent.
Here are the new employer tax rate and the standard employer tax rate ranges for each state.
SUTA new employer tax rate
Tax rate range for positive to negative balance employers
2.7% (2.19% comprises employer share; 0.51% comprises employee share)
District of Columbia
2.7% or average rate of employer contributions in the preceding year, whichever is greater
3.1% (0.3825% comprises employee share)
1.0% or industry average rate (whichever is greater)
1.0% (most employers)
2.7% (most employers)
3.05% (payroll < $500,000), 3.25% (payroll > $500,000)
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 nonconstruction business in California (as of 2023), the SUTA new employer tax rate is 3.4 percent, 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.
While each state has its own process for registering as a new employer and setting up a state unemployment tax account, there are some crucial items nearly all states require, including the following:
Each employer is responsible for reporting their SUTA tax liability to their respective state and making tax payments.
Once you’ve gathered the above requirements, follow these steps to set up and pay your SUTA tax:
Although you can manually calculate your SUTA tax, using a payroll software solution is much easier. The best online payroll services have built-in tax rate and wage base updates. Consider the following payroll solutions that make it particularly easy to calculate and pay SUTA tax.
OnPay is an affordable, full-service payroll solution. It has one pricing tier that covers all services, including unlimited payroll runs and multiple pay schedules. Best of all, it calculates federal, state and local taxes and has an error-free guarantee, even if you have employees in multiple states. Our full OnPay review details how the solution handles tax withholding for federal and state unemployment and processes company contributions seamlessly.
ADP Payroll automatically calculates your tax liability and submits your payments, guaranteeing that the amount of your SUTA tax is correct. If there are errors, the company pays any fines or penalties levied by the state on your behalf. The company can even talk to state taxing authorities for you to iron out payroll discrepancies and provide expert advice on regulations and compliance. Our in-depth ADP Payroll review highlights the solution’s impressive tools, including the Turnover Probability Explorer and the Pay Equity Explorer.
Paycor provides a company representative to ensure you get everything you need from the solution’s vast feature set. It has four service tiers, depending on your needs, but tax calculation is included in all of them. After running payroll, you can preview your pay stubs. The company also offers tax compliance support to reduce errors in tax calculations. It automatically files your payroll taxes, so you don’t have to worry about penalties for late filing. Find out more in our comprehensive Paycor review.
Justworks is an easy-to-use platform that can help companies handle their human resources functions even without an HR department. In addition to calculating and filing SUTA and federal taxes, it helps with state and federal tax compliance and has several other risk-reducing functions. Our detailed Justworks review explains how the platform can calculate and pay taxes in all 50 states.
Jennifer Dublino contributed to this article.