If you have employees, your tax responsibilities as a business owner include paying state unemployment tax (known as either SUI or SUTA) and federal unemployment tax (known as FUTA). But how much do you have to pay? Here’s everything you need to know, including:
Quick Links
- the difference between state and federal unemployment taxes,
- your state’s annual SUTA rate,
- and how to calculate your state’s annual SUTA rate.
What is state unemployment tax?
State unemployment tax (SUTA), also known as state unemployment insurance (SUI), is an employer-funded tax that gives short-term benefits to employees who lose their jobs through no fault of their own. SUI is one part of the payroll taxes you withhold from employees’ paychecks.
When employees file for unemployment because they’ve been laid off, they may receive a wage replacement from their state as part of their unemployment benefits. This wage replacement is funded by employers who pay the SUI tax. Keep in mind that employees who quit their jobs or get fired for cause (as opposed to being laid off) aren’t eligible for unemployment benefits from the state.
The SUI tax is a percentage of your employees’ wages, and you pay it to the state where the work takes place. That means you pay SUI tax to the state your business is located in if your employees also work there. However, if you have remote employees who work in different states, you pay SUI tax to each state in which your employees work.
What is the SUI tax rate?
Every state has a different annual SUI tax rate, a different tax rate range, and a different wage base for unemployment tax. The wage base means you only contribute unemployment tax until the employee earns above that specific amount. For example, if the wage base is $10,000, but your employee earns $40,000 a year, you’ll only pay SUI taxes on that first $10,000.
The tax rate changes annually for each state. The particular SUI rate you pay also depends on certain individual factors, like your business’s industry, your experience in business, and the number of former employees you have who filed for and received unemployment benefits. If you have more employees who file for unemployment benefits your SUI tax rate could be higher.
To keep your SUI tax rate as low as it can possibly be, it’s important to maintain records of your employment and employees’ performance and behaviors. This means documenting any misconduct that leads to firing, measuring employees’ job performance, and conducting regular performance reviews.
What is FUTA?
The Federal Unemployment Tax Act (FUTA) works in conjunction with state programs to give certain workers unemployment compensation. Most employers pay both federal and state unemployment taxes.
The IRS has three tests used to determine whether or not you have to pay FUTA tax: a general test, a household employers test, and an agricultural employers test. With the general tax, you have to pay FUTA tax on the wages you pay employees who aren’t household or agricultural employees if either one of the following conditions applies:
- You paid wages of $1,500 or more to employees in any calendar quarter during 2022 or 2023.
- You had one or more employees for at least some part of a day in any 20 or more different weeks in 2022, or 20 or more different weeks in 2023. This includes all full-time, part-time, and temporary employees.
In that case, you would file Form 940, the Employer’s Annual Federal Unemployment (FUTA) Tax Return. The FUTA tax rate is 6 percent, and it applies to the first $7,000 you pay employees as wages during the year.
However, if you paid state unemployment taxes in full and on time (by the due date of Form 940), you could receive a tax credit of up to 5.4% of FUTA taxable wages when you file Form 940. If you get the full credit, your FUTA tax rate drops to 0.6%. The only exception is if your state is a credit reduction state, which means your state has taken loans from the federal government to cover its unemployment benefits—but hasn’t repaid the loans on time.
Who pays SUI taxes?
Aside from a few rare exceptions, all employers are required to pay state unemployment insurance tax for employees over the age of 21. In most states, employees do not pay SUI taxes, but employees in Alaska, New Jersey, and Pennsylvania do.
Some companies, like charitable organizations, are exempt from paying SUI taxes. 501(c)(3) organizations are exempt from the tax by federal law, and states may have their own exemptions.
Who qualifies for unemployment benefits?
Workers who lose their job at no fault of their own are eligible for the benefits funded by SUI taxes. For example, if an employee is laid off due to downsizing, seasonal work, or if a company shuts down, they can file an unemployment claim. Employees who quit or are terminated with cause cannot qualify for unemployment benefits.
How do you calculate SUI?
To calculate approximately how much SUI you’ll pay, you need to know your state’s wage base and tax rate. From there, you can use this formula:
taxable wage base x tax rate / 100 = SUI
Let’s say, for example, that you operate your business in California, and that’s where your employees are too. California’s wage base is $7,000 and the highest tax rate is 6.2%. Using the formula, you could estimate that you’ll pay $434 in SUI tax for an employee.
Of course, this is just an estimate, since your specific tax rate will depend on a handful of different factors unique to your state and business.
How do you get your SUI tax rate?
To get your specific SUI tax rate, you need to sign up for a SUTA tax account with your state government. The Department of Labor (DOL) has a list of all the states’ contact information for their unemployment agencies.
Your state agency will tell you what your new employer contribution rate is and for how many years you’ll get to keep that rate, then keep you updated on rate changes from your state. If you already have a SUTA tax account with your state government, you can log into your account to check your rate.
State-by-state SUI tax rates
| State | New employer 2024 tax rate | Tax rate range | Wage base |
| Alabama | 2.7% | 0.2% – 5.4% | $8,000 |
| Alaska | Standard rate: 2.37% Employee rate: 0.51% | 1% – 5.4% | $49,700 |
| Arizona | 2% | 0.05% – 14.03% | $8,000 |
| Arkansas | 1.9% | 0.1% – 6% | $7,000 |
| California | 3.4% | 1.5% – 6.2% | $7,000 |
| Colorado | 1.53% | 0.64% – 8.68% | $23,800 |
| Connecticut | 2.5% | 0.1% – 10% | $25,000 |
| Delaware | 1% | 0.1% – 5.4% | $10,500 |
| District of Columbia | 2.7% | 1.9% – 7.4% | $9,000 |
| Florida | 2.7% | 0.1% – 5.4% | $7,000 |
| Georgia | 2.64% | 0.04% – 8.1% | $9,500 |
| Hawaii | 3% | 0.2% – 5.8% | $59,100 |
| Idaho | 1.23% | 0.352% – 5.4% | $53,500 |
| Illinois | 3.4% | 0.3% – 8.1% | $13,590 |
| Indiana | 2.5% | 0.5% – 7.4% | $9,500 |
| Iowa | 1% | 0% – 7% | $38,200 |
| Kansas | 2.7% | 0.16% – 6% | $14,000 |
| Kentucky | 2.7% | 0.3% – 9% | $11,400 |
| Louisiana | Varies | 0.09% – 6% | $7,700 |
| Maine | 2.04% | 0% – 5.75% | $12,000 |
| Maryland | 2.6% | 0.3% – 7.5% | $8,500 |
| Massachusetts | 1.87% | 0.73% – 11.13% | $15,000 |
| Michigan | 2.7% | 0% – 6.3% | $9,500 |
| Minnesota | Varies | 0.1% – 9% | $42,000 |
| Mississippi | 1% | 0% – 5.4% | $14,000 |
| Missouri | 2.38% | 0% – 5.4% | $10,000 |
| Montana | Varies | 0.13% – 6.12% | $43,000 |
| Nebraska | 1.25% | 0% – 5.4% | $9,000 |
| Nevada | 2.95% | 0.25% – 5.4% | $40,600 |
| New Hampshire | 2.7% | 0.1% – 7% | $14,000 |
| New Jersey | 3.4% | 1.2% – 7% | $42,300 |
| New Mexico | Varies | 0.33% – 5.4% | $31,700 |
| New York | 3.4% | 1.5% – 8.9% | $12,500 |
| North Carolina | 1% | 0.06% – 5.76% | $31,400 |
| North Dakota | 1.09% | 0.08% – 9.68% | $43,800 |
| Ohio | 2.7% | 0.4% – 10.1% | $9,000 |
| Oklahoma | 1.5% | 0.3% – 9.2% | $27,000 |
| Oregon | 2.4% | 0.9% – 5.4% | $52,800 |
| Pennsylvania | 3.822% | 0.75% – 8.95% | $10,000 |
| Rhode Island | 0.79% | 0.89% – 9.49% | $29,200 |
| South Carolina | 0.39% | 0% – 5.4% | $14,000 |
| Tennessee | 2.7% | 0.01% – 10% | $7,000 |
| Texas | 2.7% | 0.5% – 6.5% | $9,000 |
| Utah | Varies | 0% – 7% | $47,000 |
| Vermont | 1% | 0.4% – 5.4% | $14,300 |
| Virginia | 2.5% | 0.1% – 6.2% | $8,000 |
| Washington | Industry average | 0% – 5.4% | $68,500 |
| West Virginia | 2.7% | 1.5% – 7.5% | $9,521 |
| Wisconsin | 2.5% | 0% – 10.7% | $14,000 |
| Wyoming | Varies | 0% – 8.5% | $30,900 |
How to pay unemployment tax
Once you sign up for an account with your state’s unemployment agency and receive an account number, you can login to make quarterly payments and report your SUTA tax liability. To pay FUTA, you must file Form 940 by January 31. If your FUTA tax liability is more than $500 for a calendar year, you also need to make at least one quarterly payment, which you can do through the Electronic Federal Tax Payment System.
What if I fail to pay my state’s unemployment tax?
Failure to pay SUI taxes may be classified as a felony, depending on the severity of the case. States can levy fines up to $10,000, and you run the risk of temporarily or permanently losing access to unemployment insurance benefits. Penalties can also include probation or jail time.
What if my business operates in one state, but my employee works in a different state?
You are subject the SUTA tax rate where the employee works.
