What is SUTA (State Unemployment Tax)?

Each state runs an unemployment insurance program funded mainly by employer taxes, commonly called SUTA. Employers register with their state workforce or labor agency, report wages quarterly and pay tax on each employee's wages up to the state's taxable wage base.

How rates are set

States assign each employer a rate. New employers usually receive a standard new-employer rate. After a few years, the rate is based on experience: employers whose former employees claim more unemployment benefits generally pay higher rates. Taxable wage bases vary widely between states.

Employee contributions

In most states only employers pay. A few states also require employee contributions that employers withhold; see our state guides, such as Alaska.

Relationship to federal FUTA

Paying SUTA on time is what earns the credit against federal unemployment tax, which reduces the effective FUTA rate. Late or unpaid state contributions can reduce that credit; see Form 940 and FUTA. The IRS explains the credit in Publication 15.

Multi-state employees

Generally, wages are reported to one state based on rules about where the work is localized. Remote employees in other states may require registration there.

Managing SUTA costs

• Respond to unemployment claims promptly and accurately
• Review the annual rate notice for errors
• Record SUTA expense and liability each payroll and reconcile to quarterly reports

Separate programs

Some states also run paid family leave or disability insurance programs with their own contributions, reported separately. Check our state guides and our payroll services.

Browse more definitions in the small business glossary.