- Dec 18, 2023
Suta Tax and Wage Base
The employer’s responsible for withholding a particular amount for the Federal and State income tax, FICA taxes like social security and medicare tax, and unemployment taxes, like SUTA tax.
But becoming an employer comes with a price; this means learning the ins and outs of the State Unemployment Tax Act (SUTA) tax and how it applies to small businesses.
In this blog, we shall take you through everything about SUTA tax, from what it is to how to calculate it and how it should be calculated. If you are on the hunt for a real paystub, then Stubbuilder is the perfect choice for you.
What is SUTA Tax?
SUTA, short for State Unemployment Tax Act, is the state unemployment insurance program to benefit workers whose jobs have been hit.
Employers contribute to the state unemployment programs by paying SUTA tax quarterly, depending upon the SUTA tax rate and the Wage Base. The employer’s responsible for withholding the tax and making the payments.
In some states, it is the employer who contributes towards SUTA taxes. But in other states, for example, Alaska or New Jersey, the SUTA programs require employers’ and employees’ contributions.
Some states refer to SUTAs as State Unemployment Insurance (SUI). Moreover, some states provide absolution from paying SUTA tax for nonprofits and businesses that employ few employees.
SUTA Tax Rates and Wage Base Limit
=> Every state has its own SUTA tax rates and taxable wage base limit. The tax rates are updated at regular intervals and might increase for businesses in various industries with higher turnover rates.
=> SUTA tax rates will vary depending on each state. Every state has a range of SUTA tax rates ranging from (0.65%-6.8%). Employers will receive an assessment for which they have to pay.
=> Some of the states have their own SUTA wages base limit. The wage base limit is the maximum limit threshold for which the SUTA tax can be withheld.
=> In a scenario where the employer starts a new business, the state provides a typical new employer SUTA rate. This rate will change as the business grows, depending upon the number of unemployment claims made to the state by workers who have lost their jobs.
SUTA Tax Calculation
The basic formula for calculating the SUTA tax looks like the following:
Wage Base X Tax Rate
Unlike FUTA taxes, States do not apply the same SUTA tax rates across the board to all non-exempt employers. Instead, the state unemployment offices assign a specific tax rate, which can be changed based on annual evaluations.
How Can Employers Lower the SUTA Tax Rate?
Employers dealing with frequent layoffs and high employee turnover will have a higher SUTA tax rate as employees who lose their jobs will claim unemployment benefits with the state.
The lower the SUTA tax, an employer must first reduce the frequent layoffs and employee turnover. While fewer workers claim unemployment benefits from the State due to job loss, the SUTA tax rate for the employer will be adjusted to a lower rate due to this reduction in the SUTA tax withholding.
SUTA Wage Base (Wage Limit)
Your State’sState’s SUTA wage base is the employee earnings amount, subject to SUTA tax. Unlike the SUTA tax rate, the same wage base applies to all the state’s employees. Just because this amount is a maximum, it is also known as a wage limit.
For example, if you run a business in a city like California with two employees, Kevin and Dean. Kevin makes $10,000 per year, while Dean makes $60,000 per year.
California’s taxable unemployment insurance wage limit for 2023 is $7,000 per employee. This wage limit applies for each employee. But you might question that you are paying SUTA taxes on Kevin and Dean’s wages up to $7,000 each in this example.
Because each state has set its wage base, and that wage base you will be using to determine your SUTA tax liability will depend upon your state.
This wage will also be subject to change every year. It is a good idea to check the wage base regularly, as any changes will affect how much SUTA tax you must submit to stay in the loop.
SUTA Tax Example
Now you have an idea about how much SUTA tax you will need to pay, but that will not only depend upon your state but also on factors like your business’s employee turnover history.
A new employer in South Dakota who is not in the construction firm would, for example, use the 1.2% new employer tax rate to calculate its SUTA tax liability. The 2023 wage base rate in South Dakota is $15,000.
So, in this example, the new employer will use the following formula to determine the SUTA tax payable per employee:
Wage Base X Tax Rate, which is $15,000 X 1.2%.
How To File and Pay Suta Taxes
Once you have registered with your state and have received your employer tax number, you will need to start filing returns and pay any required SUTA taxes.
If the payments are made quarterly, you will need to make every quarter’s payment by the last of the month, which follows the end of each calendar quarter.
|January 1 to March 31
|April 1 to June 30
|July 1 to Sep 30
|October 1 to December 31
Being a new employer, you will need to pay SUTA tax. By staying on the top of the chain and following your state’s rules and regulations, you will be immersed and prepared for your SUTA requirements. If you are looking for a paystub generator free, you must visit Stubbuilder which is a free tool.