All You Need to Know About FUTA and SUTA Taxes in 2024
February 19, 2024
The IRS’ acronyms, FUTA and SUTA, refer to the Federal and State Unemployment Tax Act. Both aid in funding the government’s unemployment assistance compensation and programs for workers who were laid off or lost jobs.
Our tax experts at Paystub.org will explain everything you need to know about SUTA and FUTA, including the tax rates, limitations on who is exempted from paying the said taxes, and how FUTA and SUTA are paid and reported to the IRS.
Let’s begin!
Key Takeaways
- FUTA and SUTA both generate financial support for federal and state unemployment programs.
- The tax rate for FUTA is fixed at 6% and levied only on the first $7,000 of taxable wages paid to each employee.
- SUTA tax rates and wage bases vary per state—also, only three states, namely Alaska, Pennsylvania, and New Jersey, levy SUTA on both employers and employees.
- The IRS levies FUTA taxes on employers, while employers and employees cover FICA taxes. Independent contractors or self-employed individuals do not pay FUTA or SUTA taxes but must pay Medicare and Social Security taxes.
What is FUTA?
FUTA, or Federal Unemployment Tax Act, is legislation that levies payroll taxation on employers. It is meant to help fund the government’s unemployment benefits for individuals displaced from their jobs.
Employers who have compensated their employees at least $1,500 within any quarter of the year must pay FUTA taxes.
In the same manner, a business that employs at least a single employee who completes a minimum of 20 work weeks annually must also cover FUTA tax payments.
Each state has a designated state unemployment insurance agency that ensures all the funds generated through FUTA taxes go towards providing unemployment insurance and benefits.
What is SUTA?
State Unemployment Tax Act, or SUTA, is a type of payroll tax imposed on employers to help generate funds for the government’s state unemployment benefits.
Each state may vary regarding the SUTA tax rates, regulations, and wage bases imposed on their constituents. As such, taxpayers should consult with the state unemployment agency in their area to ensure full compliance with both federal and state laws.
Employers cover SUTA taxes solely in most states except Alaska, Pennsylvania, and New Jersey. These three states impose SUTA taxes on both employers and employees.
What is FUTA Rate, and How Does it Work?
The FUTA tax rate is fixed at 6% and applies only to the initial $7,000 wage base paid to each employee within the year. Businesses that pay state unemployment taxes are eligible for a 5.4% tax credit on their federal taxes.
Since employers pay FUTA taxes quarterly, the due dates for paying the said tax are January 31, April 30, July 31, and October 31.
Once an employer has paid FUTA taxes on the first $7,000 of an employee’s wages, they do not have to pay subsequent FUTA taxes on the rest of their staff’s earnings.
To calculate FUTA tax liability, multiply the total number of workers employed by your company by $7,000. Then, multiply the resulting value by 0.06.
For instance, you have 45 employees, each making $7,000 or more in taxable earnings annually.
The formula would look like this: (45 X $7,000) X 0.06 = 315,000 X 0.06 = $18,900. Therefore, your FUTA tax liability is $18,900. Remember to apply the 5.4% tax credit on your FUTA tax if you have paid state unemployment taxes.
What is SUTA Rate, and How Does it Work?
SUTA rates refer to the unemployment benefit taxes levied among the different states. There is a clear distinction between FUTA and SUTA tax rates because SUTA tax rates differ per state. The majority of states across the US base their SUTA tax rates on the following factors:
- Industry. Some industries have a high turnover or unemployment rate compared to other sectors. Businesses with higher turnover rates must pay higher unemployment insurance claims and SUTA tax rates.
- Business’s age. New companies have a limited employment history or insufficient records to help the government determine their SUTA liability. As such, new businesses typically get lower SUTA tax rates than their more established counterparts.
- Turnover history. If an employer has been in the business for many years, their SUTA rates may or may not increase depending on whether they have high unemployment claims.
Meanwhile, the table below shows the different SUTA tax rates per state:
State | Wage Base | Minimum SUTA Tax Rate | Maximum SUTA Tax Rate |
|---|---|---|---|
Alabama | $8,000 | 0.2% | 6.8% |
Alaska | $49,700 | 1% | 5.4% |
Arizona | $8,000 | 0.08% | 20.93% |
Arkansas | $7,000 | 0.225% | 10.125% |
California | $7,000 | 1.5% | 6.2% |
Colorado | $23,800 | 0.81% | 12.34% |
Connecticut | $25,000 | 1.1% | 7.8% |
District of Columbia (DC) | $9,000 | 1% | 7.4% |
Delaware | $10,500 | 0.3% | 6.5% |
Florida | $7,000 | 0.1% | 5.4% |
Georgia | $9,500 | 0.06% | 8.1% |
Hawaii | $59,100 | 1.7% | 6.2% |
Idaho | $53,500 | 0.352% | 5.4% |
Illinois | $13,590 | 0.85% | 8.65% |
Indiana | $9,500 | 0.5% | 11.2% |
Iowa | $38,200 | 0% | 7% |
Kansas | $14,000 | 0.1% | 6% |
Kentucky | $11,400 | 0.3% | 9% |
Louisiana | $7,700 | 0.09% | 6.2% |
Maine | $12,000 | 0.28% | 6.03% |
Maryland | $8,500 | 0.3% | 7.5% |
Massachusetts | $15,000 | 0.56% | 8.62% |
Michigan | $9,500 | 0.06% | 10.3% |
Minnesota | $42,000 | 0.1% | 9.00% |
Mississippi | $14,000 | 0% | 5.4% |
Missouri | $10,000 | 0% | 5.4% |
Montana | $43,000 | 0% | 6.12% |
Nebraska | $9,000 | 0% | 5.4% |
Nevada | $40,600 | 0.25% | 5.4% |
New Hampshire | $14,000 | 0.1% | 7.5% |
New Jersey | $42,300 | 1.2% | 7% |
New Mexico | $31,700 | 0.33% | 5.4% |
New York | $12,500 | 2.025% | 9.825% |
North Carolina | $31,400 | 0.06% | 5.76% |
North Dakota | $43,800 | 0.08% | 9.68% |
Ohio | $9,000 | 0.4% | 10.1% |
Oklahoma | $27,000 | 0.3% | 9.2% |
Oregon | $52,800 | 0.9% | 5.4% |
Pennsylvania | $10,000 | 1.419% | 10.3734% |
Rhode Island | $29,200 | 1.1% | 9.7% |
South Carolina | $14,000 | 0.06% | 5.46% |
South Dakota | $15,000 | 0% | 8.8% |
Tennessee | $7,000 | 0.01% | 10% |
Texas | $9,000 | 0.25% | 6.25% |
Utah | $47,000 | 0.3% | 7.3% |
Vermont | $14,300 | 0.4% | 5.4% |
Virginia | $8,000 | 0.1% | 6.2% |
Washington | $68,500 | 0.27% | 6.02% |
West Virginia | $9,000 | 1.5% | 8.5% |
Wisconsin | $14,000 | 0% | 12% |
Wyoming | $30,900 | 0.48% | 9.78% |
Alaska levies 0.5% for employee SUTA coverage, New Jersey 0.425%, and Pennsylvania 0.07%.
To calculate SUTA taxes, multiply your tax rate by your state’s wage base. For example, if your business operates in California with a tax rate set at 6.2%, you have to pay $434 in SUTA taxes for each employee.
The deadline for paying SUTA taxes is the last day of the month at the end of every quarter.
Who is Exempt From Paying FUTA and SUTA Taxes?
Nonprofit organizations, charitable organizations, educational institutions, religious groups, and government employers are exempt from paying FUTA and SUTA taxes.
This also applies to businesses that have not employed new staff in 20 weeks or more. Additionally, employers who pay less than $1,500 worth of taxable wages to their employees every quarter also don’t need to include SUTA or FUTA taxes when calculating their payroll taxes.
How to Pay & Report FUTA and SUTA
Here’s how to approach paying and reporting FUTA and SUTA taxes:
FUTA Taxes
You can pay your FUTA taxes by depositing the amount electronically at the end of the month following the end of a quarter. You can do it through the IRS electronic funds transfer.
Next, you must also file the correct tax form, Form 940; you can do that electronically, too, by checking out your e-filing options on the official website of the IRS.
SUTA Taxes
There are several considerations when paying and reporting SUTA taxes. Specifically, if an employer has offices and staff based in different states, they are obliged to pay SUTA taxes on all the states where they assign employees.
Employees working in multiple states must specifically pay SUTA taxes in the states where they receive instructions or directions from their employer. They must also pay state unemployment taxes in the state where they have an office for their job.
FUTA vs. FICA Taxes
The main difference between FUTA vs. FICA taxes is in the party that pays each payroll tax. The IRS levies FUTA taxes on employers, while employers and employees pay FICA taxes.
Here are a few more critical distinctions between FUTA and FICA:
- FUTA taxes help fund the government’s unemployment insurance programs, while FICA aids in sustaining federal Medicare and Social Security programs.
- With FICA taxes, the IRS imposes a wage base limit solely on Social Security taxes. For Medicare, all covered employee earnings are subject to Medicare taxation.
- Self-employed individuals must not pay FUTA tax, but they have to pay Social Security and Medicare taxes.
- All FICA taxes withheld from employees’ salaries are reflected on their Form W-2.
SUTA vs. SUI
There is no distinction between SUTA and SUI because both refer to the same payroll tax. SUI (State Unemployment Insurance) refers to the same payroll tax as SUTA, but each state may use different terms to refer to state unemployment taxes.
Other alternative terms used in place of SUTA and SUI include re-employment and unemployment benefit taxes.
Final Thoughts
Now that you know the meaning of FUTA and SUTA and the different regulations governing each tax, you can better prepare your business expenses in time to file all your tax obligations.
Note the deadlines and tax forms needed to report and pay your FUTA and SUTA taxes. Additionally, stay updated with any relevant changes that may increase or decrease your taxes due.
FUTA and SUTA FAQ
#1. What happens if an employer doesn’t pay FUTA and SUTA taxes?
An employer who does not pay FUTA and SUTA taxes will face a 2% to 15% payroll tax penalty.
Penalty costs depend on the amount of taxes the employer owes, the business size, and the number of days since the FUTA and SUTA taxes remain unpaid after the due date.
#2. Is FUTA tax deductible?
Yes, FUTA is tax deductible. Businesses or employers can deduct the amount paid to cover FUTA taxes from the state unemployment taxes they still owe. However, businesses must first verify their area's applicable state and federal tax deduction policies.
#3. Do self-employed people pay FUTA and SUTA taxes?
No, self-employed individuals do not pay FUTA and SUTA taxes. They are exempted from federal and state unemployment taxation even if a business employs their services contractually.
