When running a business, there are many responsibilities pulling you in different directions. Payroll taxes are one of the big ones—and they can cause plenty of confusion for business owners of all sizes. The terms SUTA and SUI are common terms in the business world, but they are not terms that most people are familiar with or understand. However, employers and employees must understand what these terms mean in order to stay compliant and avoid penalties.
In this article, we’ll break down the meaning of SUTA, the difference between SUTA and SUI, who pays it, and how it impacts your business. By the end of this guide, you’ll understand what SUTA is, how it works, and how to stay compliant.
What is SUTA? A Quick Guide
The State Unemployment Tax Act (SUTA) is a state payroll tax that funds programs and benefits for unemployed citizens. Nearly all employers are required to pay into this system. The money from the SUTA tax goes into the state unemployment fund, which provides temporary income to eligible workers who lose their jobs through no fault of their own. Without SUTA, states would not have the funding for the state unemployment fund and would not be able to support the unemployed workers when they need it most.
Your business’s SUTA rate will depend on the state you operate in. Each state sets its own wage base (the maximum amount of wages subject to the tax) and its own tax rates. In general, your rate is influenced by how many unemployment claims your business has had in the past—so businesses with high turnover usually pay more.
In short, the purpose of SUTA is to provide temporary income assistance to unemployed workers and help bridge the gap while in between jobs.
Are SUTA and SUI the Same Tax?
Yes, State Unemployment Tax Act (SUTA) and State Unemployment Insurance (SUI) are the same tax. The terminology is different depending on the state or payroll provider. However, both terms can be used interchangeably to describe the same tax that employers must pay to help support state unemployment benefits. For example, in Maine, the tax is referred to as the “State Unemployment Tax Act.” But, in Florida, it is called the “Reemployment Tax.”
Who Pays SUTA/SUI?
In most states, employers are the ones responsible for paying SUTA. Your business is required to pay SUTA tax if you:
- Have at least one employee (full-time, part-time, or temporary) who works 20 or more weeks during a calendar year, or
- Paid wages of at least $1,500 or more to employees in a calendar year.
However, in some states, both the employer and employee pay SUTA taxes. Although this is limited to just a few states, which are
- Alaska
- New Jersey
- Pennsylvania
Nonprofit organizations or charity organizations with 501(c)(3) status are generally exempt from and do not have to pay SUTA. In addition, many states exempt wages paid to employees under age 21, particularly in agricultural or seasonal work.
SUTA vs. SUI
The State Unemployment Tax Act (SUTA) is implemented in every state. However, some states have different names, and it can be referred to as something different, such as State Unemployment Insurance (SUI), contribution tax, reemployment tax, or unemployment benefit tax. Regardless of what it’s called, the function is the same: to provide income for people who lost their jobs through no fault of their own.
How is SUTA calculated?
Your SUTA liability is based on two main factors:
- The taxable wage base – Each state sets a maximum amount of each employee’s wages subject to SUTA. For example, Maine’s wage base in 2025 is $12,000, while Oregon’s is over $50,000.
- Your assigned tax rate – New employers usually start with a standard rate. Over time, your rate may go up or down depending on your industry, how long you’ve been in business, and how many former employees file unemployment claims.
In short, employers with steady employment and few layoffs often benefit from lower rates.
How to File and Pay SUTA
While SUTA is a state-level tax, it works a lot like its federal counterpart, FUTA. Employers need to:
- Register with their state’s labor or unemployment agency. Registration is usually done online, and you’ll be issued an employer account number and SUTA rate.
- File regular reports. Most states require quarterly reporting, but some may require monthly payments depending on liability.
- Submit payments on time. Late payments can lead to penalties and also impact your federal unemployment tax credit.
If your business has employees in multiple states, you’ll need to register and file separately in each state where employees perform most of their work.
Note: Most payroll providers, including Paper Trails, will collect and remit all payroll taxes, such as SUTA for their clients.
SUTA FAQs
Do I have to pay both SUTA and FUTA taxes?
Yes, unless your business is exempt for one of the reasons listed above. Federal Unemployment Tax (FUTA) is a federal payroll tax, and State Unemployment Tax (SUTA) is a state payroll tax that both need to be paid.
How do I know if my organization is exempt?
Organizations that are exempt from SUTA could include nonprofit organizations, government employers, and religious, charitable, and educational institutions. However, it is important to review state law to determine if your organization is exempt.
How do employers register for SUTA?
In order to register for SUTA, employers must apply through their state’s labor or unemployment agency. The recommended method for speed and accuracy is registering online. Then, after registration, the state assigns an employer account number and SUTA rate to your business.
What is SUTA on my paycheck?
SUTA on your paycheck refers to the State Unemployment Tax Act. For most employees, SUTA does not appear as a deduction on their pay stub. Only employees in Alaska, New Jersey, and Pennsylvania pay SUTA taxes. In all other states, SUTA is paid entirely by their employer.
What are SUTA tax credits?
SUTA tax credits are reductions employers can get on their Federal Unemployment Tax (FUTA) for paying their State Unemployment Tax (SUTA) on time. This credit greatly reduces the overall federal unemployment tax an employer owes.
What is SUTA dumping?
SUTA dumping is a tax evasion scheme that employers use where they manipulate state unemployment tax systems to avoid high unemployment income tax rates. This can be done by transferring employees or payroll to a new business entity, sometimes known as a “shell company.” The goal is then to effectively shift the higher tax burden to other employers in the state and help reduce their own liability. This is unfair to other employers, but more importantly, illegal. States are actively prosecuting and penalizing employers across the country involved in this scheme.
SUTA dumping is also commonly referred to as state unemployment tax avoidance and tax rate manipulation.
Conclusion
SUTA is one of the most important payroll taxes your business pays. SUTA is important because it helps fund unemployment benefits for workers who lose their jobs while also giving employers tax credits that can help lower their federal unemployment costs. By paying SUTA, businesses stay compliant with state and federal laws but also help employees who are facing unemployment.
Understanding how SUTA works makes it less intimidating and easier for employers. By complying and paying on time, your business can avoid penalties and reduce the risk of unnecessary extra costs.
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