Similar to the Federal Unemployment Tax Act (FUTA) tax, the basic formula for calculating your SUTA tax looks like this:
wage base × tax rate
However, unlike FUTA tax, states do not apply the same SUTA tax rate across the board to all nonexempt employers. Instead, state unemployment offices or agencies assign employers a specific tax rate, and this rate can change based on annual evaluations.
SUTA Wage Base (Wage Limit)
Your state’s SUTA wage base is the amount of employee earnings that’s subject to SUTA tax. Unlike the SUTA tax rate, the same wage base applies to all employees in the state. Because this amount is a maximum, it’s also referred to as a wage limit.
Let’s say you run a business in California that has two employees, Peter and Wendy. Peter makes $10,000 per year, while Wendy makes $60,000 per year.
California’s taxable unemployment insurance wage limit for 2022 is $7,000. This wage limit applies to each employee. In this example, then, you’d pay SUTA taxes on Peter’s and Wendy’s wages, up to a maximum of $7,000 each.
Because each state sets its own wage base, the wage base you’ll use to determine your SUTA tax liability will depend on your state. And this wage base is also subject to change each year. It’s a good idea to periodically check on the wage base, as any changes will affect how much SUTA tax you must submit to stay in compliance.
SUTA Tax Rates
As with the SUTA wage base or wage limit, your SUTA tax rate will vary depending on your state. However, while all employers in your state will use the same wage base when calculating their SUTA tax payments, this is not the case with the SUTA tax rate, which varies from employer to employer.
This is because most states assign SUTA tax rates based on a number of factors, such as:
New employers. The age of your business is an important consideration when it comes to unemployment insurance. Businesses that are new employers will not have sufficient employment history to enable an assessment of a SUTA tax rate based on their turnover or unemployment claims history.
Many states have a different SUTA tax rate for new employers. For example, while Florida’s 2022 SUTA tax rates range from 0.1% to 5.4%, its new employer tax rate is 2.75%.
Employer’s industry. A state might also take into account the industry a business is in. The construction industry, for example, often sees a higher rate of turnover (and therefore, more unemployment insurance claims) than other industries.
For example, South Dakota has two new employer rates, one for employers in the construction industry and one for those not in construction. The state’s 2022 new employer tax rate for a construction business in its first year is 6%, while the rate for new employers outside of construction in their first year is 1.2%.
History of turnover/unemployment claims. Many states assess SUTA tax rates based on the number of unemployment claims made by former employees in previous years, or by the business’s turnover history. This history is known as the employer’s experience rating.
Maine, for example, calculates an employer’s experience rate using three variables:
- Employer’s three-year average taxable payroll
- Amount of unemployment benefits claimed by former employees in the past year
- Amount of taxes paid in the 13-month period from July 1 of the previous year to July 31 of the current year
Most states will evaluate your tax rate every year, so you may be assigned a different rate if there are any changes to the factors they take into consideration during their assessment.
SUTA Tax Examples
As you can see, how much SUTA tax you need to pay will depend not only on your state, but also on factors such as your business’s employee turnover history and whether or not you are a new employer.
A new employer in South Dakota that’s not in the construction industry would, for example, use the 1.2% new employer tax rate to calculate its SUTA tax liability (which South Dakota calls reemployment assistance tax). The 2022 wage base in South Dakota is $15,000.
In this example, then, the new employer would use the following formula to determine the SUTA tax payable per employee: wage base × tax rate, or 15,000 × 1.2%. Assuming each of its employees earns more than $15,000 annually, the employer would be required to pay a SUTA tax of $180 for each of its employees.
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