Tax compliance is one of the most important responsibilities that new business owners undertake. Every time a business processes payroll, the proper payroll taxes must be withheld from each employee or paid by the employer. Federal Unemployment Tax, or FUTA, and State Unemployment Tax, or SUTA, make up one portion of these tax withholdings. But, what is State Unemployment Tax?
What is State Unemployment Tax?
State Unemployment Tax Act (SUTA), also know as state unemployment insurance (SUI), is a payroll tax that each state requires businesses to pay. The withholdings from SUTA are used to fund the unemployment trust run by each state. When someone makes an unemployment claim, the state uses these funds in this trust to provide benefits to that unemployed person.
Who is responsible for paying State Unemployment Tax?
All employers, with a few exceptions by state, with at least one employee must pay SUTA. This is true for all 50 states. Additionally, there are three states in which employees must pay into SUTA as well. These states are New Jersey, Pennsylvania, and Alaska. Should your business have employees working in these states, remember to withhold this tax from their wages. Businesses with remote workers in these states, even if the business is in a different state, must withhold taxes from the employees that work in those states and file SUTA taxes to that state. Failure to comply with this requirement will result in penalties and fines from the State’s Department of Labor. Currently, the fines levied by the Maine DOL for late or non-payments is $25 or 10% of the taxes due, whichever is greater, for each quarter.
How is the SUTA amount calculated?
While the calculation for State Unemployment Tax is simple, the amount a business must pay changes annually. Each employer is “rated” by the state each year and issued an unemployment tax rate to contribute on behalf of each employee. The range for this rate varies by state, and for the State of Maine, the 2023 range is from 0.22% up to 5.69%. This SUTA rate, also know an contribution rate, is determined by a number of factors including:
- the age of a business
- turnover rate for the industry in which the business operates
- the number of former employees who have filed unemployment claims
- employer’s experience rating
Each state also has its’ own “new employer rate” for new businesses. For the State of Maine, the “new employer rate” for 2023 is 2.19%.
The second part of the SUTA calculation is known as the taxable wage base. As with the contribution rate, each state may also determine its own SUTA taxable wage base. This wage base is the amount of an employee’s wages that can be taxed for state unemployment insurance. For the state of Maine, unemployment tax is paid only on the first $12,000 in wages.
New businesses in Maine:
contribution rate = 2.19%
taxable wage base = $12,000
The first $12,000 in wages is taxed at 2.19%, which equals $262.80 in SUTA taxes for each employee.
When and how is this tax paid?
In most cases, businesses report their tax liability and make tax payments to the State each quarter. The payments are due by the end of the month following the end of the quarter.
Q1 – due April 30
Q2 – due July 31
Q3 – due October 31
Q4 – due January 31
Most states allow you to file these payments online, so check with your state for its’ process.
Remember to setup your payroll tax deductions correctly for your employees to avoid incorrect SUTA payments. Working with a trusted payroll vendor is a great way to ensure that your business is staying compliant.