If your job is to run the payroll, it important to stay well-informed of the employment tax duties. You need to contribute employer taxes on top of withholding from your employee’s income and payroll taxes.
Understanding State Unemployment Tax
State unemployment taxes do not have a standard rate. If you have employees, federal and state unemployment taxes are your responsibility to pay. The money generated from these taxes fund unemployment programs and pay your employees benefits in the case they are no longer employed from unforeseen circumstances not caused by the employee.
Usually, unemployment taxes are employer taxes which means you do not withhold the taxes from your employee’s wages. But, several states mandate that you withhold additional dollars from employee wages for state unemployment taxes which is a percentage of an employee’s earnings. Every state establishes a different range of tax rates and could be based on your industry, the number of previous employees who received unemployment benefits and experience.
The employer pays the State Unemployment Tax (SUTA) to the state where the work is being done. If all employees work in the same state your business is located, you will pay SUTA tax to that state. However, if your employees work in another state(s), you will pay SUTA tax to every state an employee works in. SUTA tax can also be referred to as state unemployment insurance (SUI), or reemployment taxes for states like Florida, Colorado, Maine and more.
Each state can also set wages bases for unemployment tax meaning you will only pay unemployment tax until the employee’s wages are over a certain threshold.
What is your SUTA tax rate?
As soon as you employ others, you must start paying state unemployment tax by law. First, you’ll need to set up an account. Sign up for a SUTA tax account with the state you are in online on your state government website, such as NYS DOL’s site here, or by mail. Every state has a different method and process for starting your account.
When you start an account, you will need to give your Employer Identification Number (EIN), then you will be granted your employer account number. Then your state will inform you what your contribution rate will be and your state’s wage base. Most states will give new accounts a standard new employer rate for the state you are in.
Some states split new employer rates up by construction and non-construction industries. For example, all new employers receive a SUTA rate of 1.25% in Nebraska, and all new construction employers receive a SUTA rate of 5.4% in 2021.
If you live in a state that doesn’t use a standard new employer rate, you must wait for your state to assign you your starting rate. NY actually does use a new employer rate, which is 4.1% for 2021.
Your state will eventually change your new employer rate. The amount of time depends on the state. You may receive an updated SUTA tax rate within one year or a few years. Most states send employers a new SUTA tax rate each year.
Generally, states have a range of unemployment tax rates for established employers. Your state will assign you a rate within this range.
How to pay unemployment tax to your state
You must report your SUTA tax liability to your state and make payments. Generally, you will need to make quarterly payments. Use your employer account number to report and deposit your SUTA tax liability.
Contact your state for more information about reporting and depositing SUTA tax.
An efficient payroll system, through an ASO such as SimcoHR, will help you track your SUTA tax responsibilities. In most cases, that system will calculate, collect, and submit all of your payroll taxes for you.
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