What is the State Unemployment Tax?
State Unemployment Tax, or State Unemployment Tax Act (SUTA), is a form of payroll tax imposed by states that employers pay to fund benefits for workers who have lost their jobs.
Other terms that states may use to define SUTA:
- State unemployment insurance
- SUI
Re-employment Tax
What Is the Difference Between SUTA & FUTA Tax?
SUTA refers to the taxes paid at the state level, but there’s also a federal equivalent. This portion is guided by the Federal Unemployment Tax Act (FUTA).
FUTA Meaning
FUTA taxes go into a fund that covers the federal government’s oversight of the states’ individual unemployment insurance programs. During times of high unemployment, a state may borrow from FUTA funds as necessary to help provide benefits for their unemployed workers.
Who Pays the State Unemployment Tax?
An employer pays the entire amount of state unemployment taxes and is required to remit the tax to the relevant state governmental unemployment insurance program on behalf of their workers.
Employers have to pay into the same state unemployment insurance (UI) program that covers regular employees in their state of business. This tax is completely on the employer payroll and pays for unemployment benefits for people whose jobs were lost — something that was not their fault.
Business Tax Exemptions
In some cases, a business might be exempt from paying SUTA tax. For instance, a business with only a handful of employees may not have to pay. Also, 501(c)(3) organizations, such as charities, private foundations, and nonprofits, aren’t required to pay state unemployment taxes. Instead, they may reimburse the state for their unemployment claims.
These exemptions vary from state to state, so check your department of labor or department of taxation for more details. If your organization meets the requirements, you’ll need to fill out an application for recognition of exemption with the IRS.
Why Do I Owe State Taxes for Unemployment?
This means that if you owe state taxes on your unemployment before November, these types of unemployment benefits, which are taxed at the state level, are not forgiven. Most states tax unemployment benefits as income, so you could owe state income taxes on what you get.
