SUTA and FUTA in the US

SUTA and FUTA: What Are They and What Should Recruiters Know? 

 

What is Unemployment Insurance in the US? 

 

Unemployment insurance (UI) is a program that provides unemployment benefits to eligible workers who have lost their job through no fault of their own and meet certain eligibility requirements. 

UI is a joint state-federal program in the US. Generally, employers must pay both state and Federal unemployment taxes, but there are some exceptions noted in legislation. Each state in the US administers their own individual unemployment insurance program.

 

What is SUTA?

 

The State Unemployment Tax Act (SUTA) is a payroll tax required of employers in the US. It is a state-level tax that supports unemployment funds for workers who have lost their job by no fault of their own. 

Although some SUTA guidelines are established under federal law, each US state maintains its own program with different eligibility requirements, benefit amounts, and more. SUTA rates may vary depending on different factors such as location or industry.

How does SUTA vary from state-to-state? 

  • Tax rates vary depending on which state you’re operating in 
  • Along with employers, some states require employees to contribute to SUTA 
  • SUTA may also be called State Unemployment Insurance (SUI), reemployment tax, or employment security tax in different states 
  • Charitable or nonprofit organizations who meet specific criteria are exempt from paying this tax in certain states 

 

What is FUTA? 

 

The Federal Unemployment Tax Act (FUTA) is a federal law that requires employers to pay to fund unemployment benefits. The FUTA tax is one of the payroll taxes that employers must pay to the federal government, along with Social Security and Medicare taxes. FUTA refers to the taxes paid at the Federal level that contribute to unemployment funds.

According to the IRS, “The FUTA tax rate is 6.0%. The tax applies to the first $7,000 you paid to each employee as wages during the year. The $7,000 is often referred to as the federal or FUTA wage base. Your state wage base may be different based on the respective state’s rules.” 

Businesses can use Form 940 to report their annual FUTA tax.

 

Key takeaways for recruiters

 

  • UI is a US system that provides benefits to eligible workers who lost their job by no fault of their own 
  • Each state in the US has their own unemployment insurance program (e.g., SUTA rates vary state-to-state) 
  • In certain states in the US, SUTA may also be referred to as State Unemployment Insurance (SUI), reemployment tax, or employment security tax 
  • The FUTA tax rate is 6.0%. The tax applies to the first $7,000 you paid to each employee as wages during the year

International recruitment companies that are expanding and operating in the US should consider working with US accounting and legal experts to avoid risk and ensure maximum compliance in all 50 states.  

 

Disclaimer: This post is provided for informational purposes and should not be considered legal advice, the final word on this topic or a political opinion.