State Payroll Taxes 101: State Unemployment Tax Act (SUTA)

Meeting your state payroll tax responsibilities is essential to protecting your business and your employees. And as your company grows, these obligations often become more complex—especially as it relates to the State Unemployment Tax Act (SUTA), where each state sets its own rates, wage bases, and reporting guidelines.

For employers navigating these regulations, understanding their SUTA responsibilities is critical to ensuring compliance, avoiding costly penalties, and maintaining eligibility for federal unemployment tax credits.

In this article, we break down the key elements of state payroll tax requirements under SUTA—offering practical insights to help you confidently manage your state unemployment tax requirements.

What is SUTA?

Also known as state unemployment insurance (SUI), the State Unemployment Tax Act (SUTA) is more than a payroll requirement—it plays a critical role in how states fund unemployment benefits and workforce programs. To stay compliant, it’s important that you know and understand your SUTA responsibilities (and how those differ from the Federal Unemployment Tax Act – FUTA), what SUTA covers, and how states set rates and manage compliance.

FUTA vs. SUTA: Understanding the Difference

While both the Federal Unemployment Tax Act (FUTA) and State Unemployment Tax Act (SUTA) serve to fund unemployment insurance programs, they operate at different levels of government.

• FUTA is a federally mandated payroll tax paid by employers to support national unemployment initiatives and provide supplemental funding to state programs during economic downturns.
• SUTA is administered at the state level. Employers (and in a few states, employees) contribute to finance each state’s unemployment insurance (UI) program. Established alongside FUTA in 1939, SUTA provides localized unemployment benefits and supports state-level job placement services.

This article will continue with a closer look at the State Unemployment Tax Act (SUTA). For additional guidance on FUTA, check out our dedicated article.

What SUTA Covers

SUTA taxes fund each state’s unemployment insurance trust, which provides temporary financial assistance to eligible individuals who lose their jobs through no fault of their own—typically due to layoffs, workforce reductions, or company closures. These benefits help support displaced workers while they seek new employment opportunities.

Eligibility requirements vary by state but generally exclude individuals who voluntarily resign without just cause or who are terminated for misconduct. Each state evaluates claims based on its own regulatory framework, which is why understanding your employer payroll tax responsibilities is a key part of maintaining payroll compliance.

Employer Responsibility for SUTA

In most states, SUTA taxes are an employer-only obligation, meaning no portion is withheld from employee wages. As part of their employer payroll tax responsibilities, employers are solely responsible for calculating, reporting, and remitting SUTA taxes in accordance with their state’s regulations.

A few states—currently Alaska, New Jersey, and Pennsylvania—require employers and employees to contribute to the state’s unemployment insurance program. In Alaska, for example, the current (2025) employee contribution rate is 0.50% of wages up to the taxable wage base, while the employer contribution rate ranges from approximately 1.0% up to 5.4%, depending on experience rating and industry class.

Because state rules can change and legislation varies widely, it's essential to conduct annual compliance reviews—especially if you have employees in multiple states. Understanding your responsibilities under state payroll tax law is critical to meeting current requirements, avoiding penalties, and ensuring smooth operations.

Varying Rates by State and Industry

What makes SUTA taxation complex is not just that each state sets its own rules, but how those rules are applied. Key factors that influence how much your business pays and how you plan for compliance include:

• State-Specific Regulation: SUTA tax rates, taxable wage bases, and administrative guidelines are governed at the state level. There is no standardized national SUTA rate; states establish their own rate schedules and policies based on their labor and economic conditions.
• Industry-Based Differentiation: Many states apply different SUTA rates to employers based on their industry classification. Sectors with historically higher levels of unemployment—such as construction, hospitality, or retail—may be assigned higher initial or average contribution rates to reflect increased unemployment claim activity. For example, a new construction firm may be subject to a higher “new employer” SUTA rate than a new business in a more stable sector, such as accounting.
• Variability in Taxable Wage Bases: States also set their own taxable wage bases, or the maximum annual amount of an employee’s earnings subject to SUTA tax. While FUTA uses a fixed base of $7,000, SUTA wage bases can range significantly. In 2025, these range from as low as $7,000 in Arkansas, California, Florida, and Tennessee to over $70,000 in Washington. This variation substantially influences the maximum SUTA liability per employee and should be factored into multistate payroll and budgeting considerations.

How Experience Rating Affects Your SUTA Tax Rate

One of the most important factors influencing your state payroll tax liability is your company’s experience rating. This measure directly affects how much you pay under the State Unemployment Tax Act (SUTA).

Impact of Experience Rating

Most states use a company’s experience rating as an important factor in setting an employer’s SUTA tax rate. While this rating does not affect federal unemployment tax (FUTA) obligations, it does play a major role at the state level (alongside other elements such as industry classification and statutory adjustments) – helping to promote employment stability and determine an employer’s SUTA rate, which can vary based on their unemployment claims history.

Mechanics of Experience Rating

In most states, a lower experience rating leads to a lower SUTA tax rate, while a higher experience rating results in higher costs.

States calculate this rating by tracking each employer’s contributions to the unemployment system alongside the unemployment benefits paid to former employees. Employers with a high number of chargeable claims see their experience rating increase, which drives up their tax rate in future years.

Conversely, businesses with minimal turnover and fewer successful claims benefit from a lower experience rating—and a lower tax rate. This structure creates a clear financial incentive to maintain a stable workforce and avoid unnecessary terminations.

New Employer Treatment

Newly established employers are typically assigned a standard “new employer” SUTA rate for an initial period, generally ranging from one to three years. This provisional rate is often based on the industry average or a default rate set by the state. Once the employer has built a sufficient employment history, their SUTA rate is adjusted based on their individual experience record.

Compliance Requirements and Risk Management

To manage your employer payroll tax responsibilities effectively, it’s important to understand the key areas of SUTA compliance and how to reduce exposure to risk. Areas to focus on include:

Timely Reporting and Payment

Employers are required to file SUTA tax reports and remit payments quarterly. Failure to do so can result in penalties, accrued interest, and even disqualification from receiving the full FUTA credit. Normally, employers who pay their state unemployment taxes on time can reduce their federal FUTA rate. At the same time, late or incomplete SUTA payments can disqualify you from this credit, leading to a much higher federal unemployment tax bill.

Accurate Data Submission

It’s critical that employers provide accurate wage data and employee information in their SUTA filings. Errors or omissions can lead to incorrect tax assessments, compliance issues, and unnecessary audit exposure.

Claim Management Responsibilities

Employers can positively impact their experience rating by responding promptly and accurately to state unemployment claim inquiries. Providing timely documentation related to an employee’s separation helps ensure benefits are only awarded when appropriate and that charges to the employer’s account are correctly applied. Proactive claim management is essential to maintaining a favorable experience rating and controlling future tax liabilities.

Important SUTA Takeaways for SMBs

We’ve covered a lot so far. To make it easier, here’s a simple checklist of what to keep in mind related to your state payroll tax and SUTA responsibilities:

1. Rules and rates are state-specific since each state administers its own unemployment program.
2. In most states, SUTA taxes are paid solely by the employer.
3. Experience rating directly affects your future SUTA rates.
4. You must register and pay SUTA in every state where you have employees—including remote workers.
5. Timely and full payment of SUTA taxes is necessary to maintain eligibility for the FUTA credit.
6. Noncompliance can result in significant penalties and interest charges.
7. State unemployment tax laws and requirements can change annually.

Frequently Asked Questions

How do employers get charged for unemployment?

Employers pay State Unemployment Tax Act (SUTA) taxes, also known as state unemployment insurance (SUI) taxes. This is typically assessed as a percentage of each employee’s wages, up to a state-defined “wage base limit.”

Do employers have to pay unemployment insurance for part-time employees?

Yes, in most cases. Even if an employee works only a few hours per week, their earnings are typically subject to state wage base limits and SUTA rates.

Who is exempt from FUTA and SUTA?

SUTA exemptions vary by state, but the most common exemptions are similar to those for FUTA:

• Nonprofits and religious organizations
• Government agencies
• Household employers
• Self-employed individuals

How do employers determine how much tax to pay?

To calculate your SUTA tax for each employee:

SUTA tax = (Taxable wages up to the state wage base) x (your SUTA tax rate).

The current wage base is on the state’s Department of Labor site. The state will assign your business a SUTA rate, typically from 0.1% to over 10%.

Can SUTA rates change?

Yes, state laws, requirements, and rates can change annually.

What should an employer do if they have employees in multiple states?

You’ll need to manage SUTA obligations separately in each state where employees perform their work. You will have to:

• Register with the state unemployment agency in every state where you have employees
• Know the taxable wage base, assigned tax rate, and filing schedule and forms for each state
• Track earnings and contributions by state
• File and pay on time in each state

Managing SUTA in multiple states can become complex. A PEO can help you maintain compliance and avoid penalties.

What happens if employers miss SUTA payments?

If you miss SUTA payments, you can face serious consequences such as:

• Penalties and interest
• Loss of FUTA credit
• State enforcement actions such as tax liens or levies or even the suspension of business licenses
• Delayed processing of unemployment claims for former employees
• Damage to reputation and credit

Catch up on missed payments as soon as possible to minimize penalties or contact the state’s unemployment agency to discuss a payment plan.