What is the SUTA tax, and how does it impact my business? Well, when you started your business, you focused on sales and marketing. You know you need customers to grow. Soon after, the growth came, and your focus shifted to hiring employees to meet your expanding business’s demands.
Employees can add significant challenges to a growing business, including payroll and unemployment taxes such as SUTA and FUTA.
What is the SUTA tax?
The state unemployment tax, also called SUTA, is a payroll tax that businesses pay into the state unemployment benefits fund. If an employee gets laid off and looks to collect state unemployment insurance, the State Unemployment Tax Act (SUTA) fund will make the payments to the employee.
FUTA is the Federal Unemployment Tax Act fund which is a payroll tax paid to the federal government.
History of the SUTA tax
The history of the SUTA tax is fascinating, and QuickBooks delivers a brief but compact description:
SUTA, or The State Unemployment Tax Act (SUTA), is a payroll tax paid by all employers at the state level. The SUTA program was developed in each state in 1939 during the Great Depression when the U.S. experienced sky-high unemployment rates.
The SUTA, along with the Federal Unemployment Tax Act (FUTA), was instituted to help U.S. workers and to keep the economy afloat.
Eighty years later, the SUTA program is still in effect. The money collected through SUTA tax continues to go into a state unemployment fund on behalf of that state’s employees. The fund is then used to pay state unemployment insurance to employees who have become unemployed through no fault of their own, such as through company layoffs. When you hear of someone collecting unemployment, it’s likely that they are drawing from SUTA funds.
The SUTA rate can vary, depending on the state in which your business is located, as well as the employer rating your state assigns your company (more on that below). To further complicate things for small businesses, The Department of Labor provides guidelines that each state must follow.
Please visit your state’s website for more information. The New York State Department of Labor is a wealth of information for both employees and employers.
Who Pays the SUTA tax?
SUTA tax is paid by all U.S.-based businesses with employees. In most cases, the employer pays the SUTA tax, although there are exceptions. Please visit your state’s department of labor if you are unsure. If you use a payroll service, they will be of great assistance to determine everything you need to do to comply with state and federal requirements.
How often do you pay the SUTA tax?
Most states require that employers pay SUTA tax quarterly. Always check with your state’s tax department or department of labor to the exact payment dates.
How to calculate the SUTA tax
The SUTA tax is calculated using two pieces of information:
- The taxable wage per employee. Taxable wages are the salaries paid to your employees that must have taxes withheld. (Laws vary by state)
- The state’s unemployment tax rate. (see below)
Most states have a standard SUTA tax rate for new businesses. This is in part because you have no history of unemployment claims. Your state may adjust your SUTA tax rate depending on the number of unemployment claims made against your business.
For example, in New York State:
- The 2020 taxable wage base is $11,600, increased from $11,400 in 2019
- The 2020 tax rate for new employers: 2.5%
- The 2020 tax rate for experienced employers: total unemployment tax rates for experienced employers range from 0.6% to 7.9%.
The calculation formula is:
taxable wage base per employee x # of employees x appropriate tax rate = amount due in SUTA tax
Understanding SUTA tax and other requirements of running your business.
Running a business is not for the faint of heart, and you don’t have to do it alone. Resources are available to help small enterprises successfully run their business, pay taxes, and keep their financials organized and up to date.
The best combination of human accountants and automated tools is here so that your daily, weekly, and monthly bookkeeping is done for you. Clean financials, including bank reconciliations, credit card reconciliations, current monthly financial statements, and operational efficiency, makes tasks such as SUTA payments just another part of your business.
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