What is SUTA tax? 2025 rates and how to calculate it

With over half of Americans considering starting a business in 2025, according to QuickBooks' Entrepreneurship in 2025 report, understanding business finances is crucial. Beyond employee payroll, entrepreneurs must navigate various tax obligations, including SUTA and FUTA taxes.

SUTA is the State Unemployment Tax Act, which requires employers to pay unemployment taxes into their respective state’s unemployment program. FUTA is for the Federal Unemployment Tax Act that requires payments into the federal uninsurance program. 

In most states, SUTA and FUTA do not show up on your employee’s pay stub because you (the employer) pay the full amount. Let’s look at exactly how SUTA taxes work, how to figure out your rate, and how to calculate them: 

How SUTA tax works 

SUTA is a payroll tax employers pay to the state. Money from SUTA taxes goes into a state unemployment fund on behalf of that state’s employees. The fund pays unemployment insurance to employees who become unemployed through no fault of their own, such as through company layoffs. 

When you hear of someone collecting unemployment, they are likely drawing from SUTA funds. The SUTA tax rate companies pay varies depending on the state in which they do business. Your state’s labor department will provide guidelines for paying SUTA taxes. 

Who pays SUTA tax?

In most states, the employer is solely responsible for paying SUTA tax. This means the tax is not deducted from employee wages. However, there are three states where employees also contribute to the state unemployment fund:

• Alaska
• New Jersey
• Pennsylvania

Who is exempt from paying SUTA tax?

While most for-profit businesses are required to pay SUTA tax, there are some exemptions. These typically include:

• Certain nonprofit organizations: Organizations that qualify for 501(c)(3) status may be exempt.
• Some agricultural employers: The specific rules vary by state, but exemptions may exist for agricultural employers with a limited number of employees or those who pay less than a certain amount in wages.
• Household employers: In some states, you may not have to pay SUTA tax for domestic workers like nannies or housekeepers if you pay them less than a specified amount.
• Self-employed individuals: If you are self-employed, you are generally not required to pay SUTA tax. However, you also won't be eligible to receive unemployment benefits if you lose your income.

Now that we've covered who is responsible for paying SUTA taxes, let's dive into how to calculate your SUTA tax liability.

Calculating your SUTA tax

While all employers must pay the SUTA tax, the exact amount each company must pay varies. Currently, two factors determine your SUTA tax: your company’s taxable wage base and SUTA tax rates.

SUTA tax rates in 2025

To calculate your SUTA tax, you’ll need to know how much of each employee’s wages are subject to the SUTA tax. Known as the taxable wage base, this is the maximum amount of earnings you can tax in a calendar year for an individual worker.

Each state sets its taxable wage base. For example, California had a taxable wage base of $7,000, while Colorado had a base of $20,400 in 2024.

Next, you’ll need to know your state’s SUTA tax rate. Each state has a range of minimum and maximum tax rates for state unemployment taxes.

SUTA vs. FUTA tax

Properly calculating and paying SUTA taxes is crucial, as it also impacts the amount of FUTA tax a business must submit. Each business receives a credit toward FUTA taxes based on SUTA tax payments.

In general, employers must pay 6% of gross wages, up to a cap of $7,000 per worker, to fund FUTA for each employee. In all 50 states, employers pay the same 6% rate for every worker, but the federal government may change the rate in future years.

Note that SUTA and FUTA taxes are also known as unemployment taxes. Meanwhile, FICA taxes make up Social Security and Medicare taxes.

How to file and pay SUTA tax

Each state has its own process for filing and paying SUTA taxes. Generally, you will need to:

• Register with your state's labor department: This typically involves providing information about your business, such as your Employer Identification Number (EIN) and the number of employees you have.
• File SUTA tax returns: Most states require quarterly filing, but some may have different deadlines. You will need to report your total wages paid and calculate the amount of SUTA tax owed.
• Pay SUTA taxes: You can usually pay online, by mail, or by phone. Make sure to pay by the due date to avoid penalties and interest.

You can find specific instructions and forms on your state's labor department website.

SUTA tax credits

If you file and pay your SUTA taxes on time with the state, you may be eligible for a tax credit when it comes time to file your annual FUTA taxes. You can report the SUTA tax you pay using Form 940 to get the tax credit—as long as your business is not located in a credit reduction state.

A credit reduction state owes money to the federal government’s unemployment fund to pay their workers’ unemployment insurance. You can check the Department of Labor’s updated list of credit reduction states. 

FUTA offers a maximum 5.4% tax credit to companies that pay their state unemployment contributions on time. When you subtract that 5.4% FUTA credit from the standard 6% rate, this greatly reduces the amount of FUTA tax your company owes to a much lower 0.6%.

Tips on keeping your SUTA tax rate low

Your company may not be eligible for the FUTA tax credit if you don’t file and pay its SUTA taxes on time. Here are some tips to keep your SUTA tax rate as low as possible: 

• Know your state’s filing schedule: Many state unemployment tax programs require tax deposits each quarter, which is similar to the FUTA requirements. 
• Reduce employee turnover: To improve employee retention, find workers with diverse skill sets who you can transfer to new departments or locations as the needs of your business change.
• Implement human resource policies: Clearly define the responsibilities of HR and payroll departments to ensure you’re keeping detailed documentation with employees. 

Good HR practices allow you to lay out expectations of employees, as well as keep track of potential issues with employees. If an employee files a wrongful unemployment claim, use your documentation to improve the chances of getting the claim denied and thereby avoid paying out unemployment insurance.

Find peace of mind come tax time

Unemployment taxes like SUTA taxes are an important component of payroll taxes. While payroll is notoriously complicated, you can easily navigate the various tax dates, rates, and payments with a good system in place. 

Luckily, there are payroll software programs available, like QuickBooks Payroll, that offer a full suite of payroll tools for businesses of any size. With software to simplify your SUTA and FUTA calculations, you can get back to doing what you do best—running and growing your business.

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