Quick links

• 
  What is SUTA Tax?
  
• 
  When is SUTA Tax due?
  
• 
  How to Calculate the Amount of SUTA Tax Owed
  
• 
  SUTA Tax Rate and Wage base Limit by State For 2022
  
• 
  How to Best Manage Your SUTA Tax Requirements
  

What is SUTA Tax?

SUTA is short for State Unemployment Tax Act. This tax is a payroll tax that businesses must pay to fund unemployment benefits. These benefits are provided to qualifying employees by the state to assist in compensation for loss in employment.

For an employee to receive unemployment benefits through the state they must be eligible. An employee may not be eligible if they:

• Are able but not willing to work
• Voluntarily leave their job without just cause
• Are terminated due to performance issues 
• Not in compliance with company policies and received numerous violations

Eligible employees will receive a percentage of the wages they would have received if still employed until they have exhausted their benefit or they find employment. 

While SUTA is generally an employer tax, there are three states that also require employees to pay state unemployment taxes. These are:

• Alaska
• New Jersey
• Pennsylvania

In these states, you would need to withhold SUTA tax from employees’ wages and remit it to the state in combination with the employer portion of taxation.

When is SUTA Tax due?

First Quarter: April 30th

Second Quarter: July 31st

Third Quarter: October 31st

Fourth Quarter: January 31st

How to Calculate the Amount of SUTA Tax Owed

A company is subject to SUTA taxes up to the wage base paid to each employee. In order to calculate the tax liability, you would use the assigned tax rate multiple times the wages paid- up to the wage base. Once an employee reaches the wage base, the company is no longer liable for the tax.

For Example:

Company ABC is headquartered in VA and has two employees.

VA wage base is: $8,000

VA Starting Rate:    2.5%

Employer: Company ABC	EIN: 99-9999999
	First Quarter		Second Quarter
	John Smith	Jesse Black	John Smith	Jesse Black
Gross Wages	$10,000	$5,000	$9,500	$5,500
Taxable Wages	$8,000	$5,000	$0.00	$3,000
Tax Due	$200 (8000*.025)	$125 (5000*.025)	$0.00	$75 (3000*.025)

SUTA Liability = (Employee A’s Eligible Wages + Employee B’s Eligible Wages) * .025

SUTA Liability = ($8,000 + $5,000) * 2.5%

SUTA Tax Rate and Wage base Limit by State For 2022

If you’re thinking of starting a business, you’ll need to know about SUTA taxes. SUTA, or the State Unemployment Tax Act, is a tax that employers pay on employee wages. The amount of the tax is based on the employee’s wages and the state’s unemployment rate. Each state has its own limit for the wage base subject to SUTA taxes. Below is a chart with the current wage base and starting rates for each respective state.

State	SUI New Employer Tax Rate	Tax Rate Range for Experienced Employer	State Wage Base Limit
Alabama	2.70%	0.65% – 6.8%	$8,000
Alaska	1.28%	1.00% – 5.4%	$45,700
Arizona	2.00%	0.08% – 20.6%	$7,000
Arkansas	3.10%	0.3% – 14%	$10,000
California	3.40%	1.5% – 6.2%	$7,000
Colorado	1.7% to 7.74%	0.71% – 9.64%	$17,000
Connecticut	3.00%	1.9% – 6.8%	$15,000
Delaware	1.8% to 2.3%	0.3% – 8.2%	$16,500
D.C.	2.70%	1.6% – 7%	$9,000
Florida	2.70%	0.1% – 5.4%	$7,000
Georgia	2.70%	0.4% – 8.10%	$9,500
Hawaii	5.20%	0.01% – 6.6%	$47,400
Idaho	1%	0.207% – 5.4%	$44,400
Illinois	3.18%	0.675% – 6.875%	$12,960
Indiana	2.50%	0.5% – 7.4%	$9,500
Iowa	1.00%	0% – 7.5%	$34,800
Kansas	2.70%	0.20% – 7.6%	$14,000
Kentucky	2.70%	0.3% – 9.0%	$11,100
Louisiana	Varies	0.09% – 6.2%	$7,700
Maine	2.31%	0.69% – 6.01%	$12,000
Maryland	2.60%	2.2% – 13.5%	$8,500
Massachusetts	2.42%	0.94% – 14.37%	$15,000
Michigan	2.70%	0.06% – 10.3%	$9,500
Minnesota	Varies	0.20% – 8.90%	$36,000
Mississippi	1.00%	0.0% – 5.4%	$14,000
Missouri	2.376%	0% – 5.4%	$11,000
Montana	1% to 2.4%	0% – 6.12%	$38,100
Nebraska	1.25%	0% – 5.4%	$9,000
Nevada	2.95%	0.25% – 5.4%	$36,600
New Hampshire	1.20%	0.1% – 7%	$14,000
New Jersey	2.80%	0.4% – 5.4%	$39,800
New Mexico	0.33% to 5.4%	0.33% – 6.4%	$28,700
New York	2.50%	0.6% – 7.9%	$12,800
North Carolina	1.00%	0.06% – 5.76%	$28,000
North Dakota	1.02%	0.08% – 9.69%	$39,100
Ohio	2.70%	0.3% – 9.4%	$9,000
Oklahoma	1.50%	0.1% – 5.5%	$24,800
Oregon	2.60%	1.2% – 5.4%	$47,700
Pennsylvania	3.69%	1.2905% – 9.9333%	$10,000
Rhode Island	1.16%	0.9% – 9.4%	$26,700
South Carolina	1.03%	0.06% – 5.46%	$14,000
South Dakota	1.20%	0% – 9.35%	$15,000
Tennessee	2.70%	0.01% – 10%	$7,000
Texas	2.70%	0.31% – 6.31%	$9,000
Utah	Varies	0.1% – 7.2%	$41,600
Vermont	1.00%	0.2% – 7.2%	$14,100
Virginia	2.50%	0.11% – 6.2%	$8,000
Washington	Varies	0.13% – 5.72%	$62,500
West Virginia	2.70%	1.5% – 12%	$12,000
Wisconsin	3.05% – 3.25%	0% – 12%	$14,000
Wyoming	1.22%	0.18% – 8.72%	$28,200

Recommended Reading: FUTA Tax: How to Calculate and Understand Employer’s Obligations

At any point in time if you feel like connecting with us in this respect, our team is there to help. You can use the link below to book a call with us.

Contact UZIO

How to best manage your SUTA Tax requirements?

While you enjoy running and growing your business, chances are you do not enjoy worrying about SUTA, FUTA and other payroll taxes. Payroll taxes are complicated and if not done right, you may be looking at steep penalties and fines. Don’t let the stress of figuring out how to calculate and remit unemployment taxes get in the way of what you want to be doing – running your business. UZIO’s software accurately calculates your tax liability for you and feeds directly into a tax system that our tax experts utilize in filing your payroll taxes on your behalf. Get your demo today and let us ease the burden for you!

Quick links

• 
  Introduction
  
• 
  The Basics of FUTA Tax
  
• 
  When is FUTA Tax due?
  
• 
  How to Calculate the Amount of FUTA Tax Owed
  
• 
  Who is exempt from FUTA?
  
• 
  How to report your FUTA Tax?
  

Introduction

The Federal Unemployment Tax Act (FUTA), is a federal law that imposes an employer tax each year used to help fund state unemployment programs and provide benefits to those who are unemployed.

The Basics of FUTA Tax

FUTA tax is a federal payroll tax that employers must pay to the federal government if a business pays wages above $1,500 or more in a calendar quarter. The FUTA tax rate for 2022 is 6.0% on the first $7,000 of wages paid to each employee during the year. However, it is subject to a reduction of a maximum of 5.4% from state unemployment contributions.

FUTA tax is only paid by the employer.  No amount is deducted from an employee’s paycheck towards FUTA taxes.

FUTA tax is used to fund the following:

• Share of the federal government cost of unemployment programs with all the states.
• The unemployment program of the states.
• The unemployed workers who are eligible to claim their unemployment insurance.

When is FUTA Tax due?

First Quarter: April 30th

Second Quarter: July 31st

Third Quarter: October 31st

Fourth Quarter: January 31st

Note: If the FUTA tax liability of your business for a quarter is less than $500, there’s no need to deposit taxes at the end of the quarter. You may roll over the tax liability to the next quarter and pay the tax amount if the liability exceeds the $500 threshold.

How to Calculate the Amount of FUTA Tax Owed

A company is subject to FUTA taxes on the first $7,000 of wages paid to each employee.  The FUTA tax rate for 2022 is 6.0%, and employers often receive a credit of up to 5.4% against this tax.

Sample Calculation

Let’s take the example of Company ABC, which employs two individuals. Employee A was paid $10,000 of wages subject to FUTA taxes in Q1 and Employee B was paid $5,000 of wages subject to FUTA taxes in Q1.

FUTA Sample Calculation

Employer: Company ABC	EIN: 99-9999999
	John Smith	Jesse Black
Gross Wages	$10,000	$5,000
Taxable Wages	$7,000	$5,000
Tax Due	$420 (7000*.06)	$300 (5000*.06)

FUTA Liability for Company ABC = (Employee A’s Eligible Wages + Employee B’s Eligible Wages) * 6% (0.06)

FUTA Liability = ($7,000 + $5,000) * 6%

FUTA Liability = $720

The company’s FUTA tax liability would be $720. Please note that the company may be eligible for a tax credit of $648 ($12,000 * 5.4%); if this is the case, the company would only owe $72.

In this example, the company ABC doesn’t have to make a deposit because its liability is less than $500 for the first quarter. However, the company must carry this liability over to the second quarter.

Who is exempt from FUTA?

Most businesses are required to pay federal unemployment tax (FUTA) and state unemployment tax (SUTA). Certain organizations, including government employers, and nonprofit religious, charitable, and educational institutions are exempt from paying these taxes.

Also an employer is exempt from paying FUTA only if they have paid an employee less than $1,500 in wages during a calendar quarter, or if they haven’t had an employee for 20 weeks or more within a calendar year.

Payments Exempt From FUTA Tax

Various forms of payments are paid to employees that are exempt from the Federal Unemployment Tax Act. The payments include:

• Fringe benefits, which include the value of certain meals and lodgings, employer contributions to accident and health plans for employees, as well as employer reimbursements for qualified moving expenses.
• Group term life insurance
• Employer retirement/pension contributions to a qualified plan, such as a SIMPLE IRA plan or a 401(k) plan
• Dependent care not exceeding $500 per employee (or $2,500 for married couples filing separately) for qualifying person’s care
• Other payments, such as payment made to an employee under worker’s compensation law because of a sickness or injury inflicted at work; non-cash payments and certain cash payments to H-2A Visa workers for agricultural labor; payments for services provided by a spouse, parent, or child under 21 years; and payments to non-employees who are treated as your employees by the state unemployment agency

Recommended Reading: The Ultimate SUTA Tax Guide: What You Need to Know

At any point in time if you feel like connecting with us in this respect, our team is there to help. You can use the link below to book a call with us.

Contact UZIO

How to report your FUTA Tax?

The employers use Form 940 to report their annual FUTA tax. The due date for filing the Form 940 is January 31. However, if you deposited all FUTA tax when due, you have until February 10 to file. 

For more details, please click the official link to the Employer’s Annual Federal Unemployment (FUTA) Tax Return – Filing and Deposit Requirements. 

Quick links

• 
  Introduction
  
• 
  Emergence of Gig Economy​
  
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  How to choose the right payment system for your gig workers?​
  
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  Factors to consider when choosing a the payroll provider for paying the gig workers​
  
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  Implications of AB5 and the road ahead​
  

Introduction

The gig economy has grown substantially in recent years, and this trend isn’t likely to slow down anytime soon. In fact, many people are now turning to the gig economy as their main source of income, which means that you’ll need to be prepared to pay gig workers on a regular basis. Whether you’re just getting started or you already have lots of freelancers working for you, it’s important to choose the right payment system for your Gig workers so that everyone gets paid consistently and on time.

Emergence of Gig Economy

The gig economy is a labor market characterized by the prevalence of short-term contracts or freelance work as opposed to permanent jobs. You can pay your gig workers using the same payroll system you use to pay your W2 employees. The difference will be that in case of gig workers, you will not withhold any taxes or make any deductions for benefits etc because gig workers are responsible for paying their own taxes and are typically not offered any benefits. There are many different payroll systems available, and choosing the right one will depend on your specific needs.

How to choose the right payment system for your gig workers?

You should consider the following factors when choosing a payment method for your gig workers.

Scale of the business

If you are just starting out, you might be writing checks to pay your gig workers.  It is also possible you are using new payment methods like Venmo, Zelle etc to make your payments when you are working on a small scale. However when you start to grow, these payment methods will not scale. You need a more robust system to pay your gig workers and it might be the right time to select a payroll system for paying your gig workers.

Need to switch from contractors to W2 employees

Hiring freelancers or independent contractors provides much needed flexibility to the business.  You don’t have to be responsible for deducting taxes, you do not need to offer benefits, overtime etc. If you think you can run and scale your business by hiring freelancers or contractors alone, you can work with a payment system that lets you easily ACH payments to your contractors. However if you think you will need W2 employees also either now or in the future and may also need to convert some or all of your freelancers and contractors to W2 employees because of state laws like the one in California (law AB5), you may be better off choosing a payroll system that can support paying your W2 employees as well as your freelancers and contractors.

Factors to consider when choosing a the payroll provider for paying the gig workers

If you decide to work with a payroll provider to pay your gig workers, you should evaluate the payroll providers on the following factors:

• Ease of use

  • Let us say you are starting out with a few W2 employees and a large number of contractors and you know that down the road you will have to convert your contractors to W2 employees, you should make sure that your payroll provider uses one system for paying both contractors and W2 employees. If that is the case, it will be much easier to convert contractors to employees. However if your provider has completely different systems to pay contractors versus the employees, when the time comes to convert the contractors to employees, it will be a heavy lift because all the information from one system will have to be transferred to another system. This can lead to delayed payments, errors etc.

• Cost

  • Many payroll providers have different pricing mechanisms for paying contractors versus W2 employees. Contractors might be getting paid daily, weekly, biweekly or monthly. W2 employees typically do not get paid daily.  Some payroll providers charge on “per pay check basis” whereas others charge on PEPM (Per Employee Per Month) basis where they allow you to run as many payroll as you want within a month for a fixed fee per employee. Depending on the number of employees and the frequency of payment, it might be better for you to work with payroll providers who use PEPM based pricing.

• Need for Billing 

  • In many industries who employ gig workers or freelancers, the amount paid to the contractor is an exact fraction of the amount charged to the end client by the company. For example, you may be running a tutoring service which provides qualified tutors to families. You charge families by the hour, for example $100/hour for every hour of tutoring provided. You also pay the tutor you have hired on an hourly basis, for example $50/hour. Because you will pay your tutor for the hours she worked and you will also charge the family for the same number of hours, you should look for a payroll provider who lets you pay your tutor for the hours she worked and use the same hours to generate a bill which you can submit to your end client. By combining the two functions into one system, you will avoid duplicity of data, errors and also potentially save on cost.

• Need for integration with a hiring system

  • Industries which employ a lot of contractors or freelancers typically see high turnover of workers. The employers are constantly hiring. When choosing a payment system, you should make sure that the system easily integrates with an Application Tracking System (ATS). These systems allow you to easily post jobs, manage the interview process, do background checks, make offers etc. You want to make sure that your ATS system easily integrates with your payroll system. It will save you lots of time and avoid errors. Otherwise your staff will spend countless hours copying and pasting data from your ATS system to your Payroll system. UZIO payroll platform seamlessly integrates with ZOHO Recruit which is a system used by lots of companies who hire contractors and temp employees. 

• Need for integration with an accounting system

  • Similar to the need for integration with ATS, you want to make sure the payroll system you choose also integrates with the accounting system you are using.  For example UZIO payroll system seamlessly integrates Quickbooks online system so that when you run your payroll, the needed data is seamlessly transferred to Quickbooks.

Recommended Reading: Biggest pain point with Payroll and HR software

At any point in time if you feel like connecting with us in this respect, our team is there to help. You can use the link below to book a call with us.

Contact UZIO

Conclusion

Choosing the right payment system is a strategic decision which can impact the growth and profitability of your business down the road. You will be well served by taking into account all the factors outlined above when choosing the right payment system for your business.

Quick links

• 
  Introduction
  
• 
  Tax Implications for the employees
  
• 
  Tax Implications for the employer
  
• 
  Social Security Tax:
  
• 
  FUTA Tax:
  
• 
  SUTA Tax:
  
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  Closing thoughts
  

Many companies who start out using a PEO (Professional Employer Organization) for their HR, Payroll, Benefits needs, sooner or later decide to transition out of the PEO and bring their HR functions inhouse. The companies make this decision because of a number of reasons like:

• High Monthly Fees charged by the PEO
• Poor Employee Experience
• Limited choice of medical benefits

For a detailed guide on How to Transition out of a PEO, please refer to our earlier blog post on this topic.

Recommended Reading: How to transition out of a PEO and bring your HR, payroll and benefits in-house?

Once you made the decision to leave your PEO, you are now wondering what are the tax implications if you do this transition mid-year. This article will provide information that can help you make that decision confidently.

Let us start by stating the obvious which is that it is always better to transition out of the PEO relationship at the end of the year. The main reason is that all the federal and state taxes for the employer as well as employees get reset at the start of a new year. When it comes to taxes, there is no negative impact on the employer or the employee of the transition if it is done at the end of the year.

However let us assume that you can not wait till the end of the year for the transition. Here is a list of tax related items you should consider before you make that decision.

Tax Implications for the employees

Having come out of the PEO, you will be filing the federal and state tax returns under your own FEIN and state IDs. For your employees, it would be like they have changed their employer even though they continue to work for you. Information of the social security taxes already paid by the PEO for an employee, will not come over.

For example, let us assume that an employee had already met the wage base for social security tax which is $147,000 in 2022 and so the PEO was not withholding the Social Security tax from the employee anymore for the year. Once the employer comes out of the PEO, the Social Security Tax will be withheld for the employee for the remainder of the year until the wage base is met again.

The employee will receive two W2s at the end of the year. When the employee files the taxes next year, the extra Social Security Tax withheld will be refunded to the employee. So while it is not a net loss to the employee in aggregate, in the short term, the employee will be at a slight disadvantage.

Tax Implications for the employer

After the employer exits the PEO, the employer will file taxes under their own FEIN and State IDs meaning they will not get the benefit of some of the taxes they paid when they were with the PEO. They will have to pay a number of additional taxes and unlike employees, these taxes will not be refunded back.

Social Security Tax:

For each employee, the employer portion of the social security tax will have to be paid. This will not be refunded back to the employer. Rough calculation of the extra Social Security Tax paid by the employer for each employee would be something like:

(Total Annual Wage – $147,000)*6.2%

When this is added for each employee, it can be a significant amount.

FUTA Tax:

FUTA is Federal Unemployment Tax which is effectively 6% on each employee’s eligible wage upto $7,000. However you receive a tax credit of 5.4% if you pay all your state unemployment tax.

Rough calculation of the FUTA paid by the employer for each employee would be around $42, which is $7,000 times 0.006.

SUTA Tax:

SUTA is State Unemployment Tax which is assessed by the state on the employer. Unlike FUTA, it differs from state to state.

Rough calculation of the SUTA paid by the employer for each employee would be SUTA rate times wage base. For example if the SUTA rate is 2.7% and the wage base is $9,000, the SUTA tax would be $243.

There may be some other minor additional taxes withheld for the employer and the employee based on where the employee lives.

Recommended Reading: Biggest pain point with Payroll and HR software

At any point in time if you feel like connecting with us in this respect, our team is there to help. You can use the link below to book a call with us.

Contact UZIO

Closing thoughts

From the tax perspective, the ideal time to leave the PEO is at the end of the year. However if you have to leave the PEO mid-year, please use this guide to calculate the additional tax liabilities. Even though, as an employer you will be paying extra taxes as outlined in the article above, it might still be worth leaving the PEO if your employees are unsatisfied with the service or you are paying too much in the PEO fees.