SUTA stands for the State Unemployment Tax Act. It's payable by employers and covers eligible employees in case they become unemployed.
Employers pay the money into each individual state's unemployment tax fund. This tax fund is available to employees who lose their jobs.
If you lay off an employee and he benefits from this scheme, he can withdraw from the state's unemployment tax fund.
Today, we're discussing the ins and outs of SUTA, and what you need to know.
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How to Calculate SUTA Tax
Each state sets its own State Unemployment Tax Tax rate. For the details of your own state's policies and requirements, you'll need to look at their state taxation website.
As an employer, the state will assign you a State Unemployment Tax rate. They'll base it on your 'experience rating'.
An experience rating changes as you come to have more experience in dealing with unemployment.
The way the program is put together encourages employment and rewards steady employers with lower taxes.
As your experience rating changes, your tax rate changes with it.
The way the system is designed, employers with a higher rate of staff turnover, and a higher risk of involuntary unemployment, will have to pay State Unemployment Tax at a higher rate.
Conversely, employers whose involuntary unemployment rate is lower will be able to pay the tax at a lower rate.
Essentially, your experience rating and subsequent State Unemployment Tax rate will depend on how many unemployment claims your company makes to the state.
State Unemployment Tax rates can also vary depending on an employer's field or industry.
New employers will start paying unemployment tax at a specific rate assigned to all new employers statewide.
This is because they haven't yet built up an experience rating, and the state's unsure of their reliability as an employer with fewer instances of involuntary unemployment.