Although most wages are subject to SUTA tax, certain wages may be exempt. In New York, for example, wages paid to babysitters under 18 years of age, church employees, and certain family members are exempt from SUTA tax. Therefore, it’s essential to check with your state unemployment agency to determine which wages are related to SUTA.
Every employer should be aware of two components of SUTA: the annual wage base and the SUTA tax rate:
Not Always Only an Employer-Paid Tax
In most states, SUTA is an employer-paid tax. Three states — Pennsylvania, New Jersey, and Alaska — require withholding as well. If you have employees in any of these three states, you must withhold state unemployment tax from their wages at the state-mandated withholding rate and up to the maximum amount of wages allowed for the year.
Impact on FUTA Rate
In addition to paying and withholding applicable state unemployment tax, employers also must file wage reports with the state unemployment agency, usually on a quarterly basis. How you handle these requirements can influence your federal unemployment tax rate.
The Federal Unemployment Tax Act (FUTA) authorizes the Internal Revenue Service to collect federal unemployment tax, which is used to help fund state unemployment programs. Since July 2011, the FUTA tax rate has stayed at 6 percent; and since 1983, the annual wage base has held steady at $7,000. You can take a maximum credit of 5.4 percent against your FUTA tax, however, if:
Taking this maximum credit will lower your FUTA tax rate to 0.6 percent. To learn more about the ins and outs of SUTA and FUTA, contact us today.
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