What is FUTA and SUTA?
The federal and state unemployment taxes employers pay to fund jobless benefits.
FUTA and SUTA: definition
Unlike FICA, unemployment taxes are generally employer-only. FUTA applies a federal rate to a low annual wage base per employee, but timely SUTA payments earn a large credit that reduces the effective FUTA rate substantially. SUTA rates vary by state and by the employer experience rating - companies with more former employees claiming benefits pay higher SUTA rates. Both fund the safety net for workers who lose their jobs.
- FUTA: federal, employer-paid, on a low per-employee wage base
- SUTA: state-specific rate and wage base, based on experience rating
- Paying SUTA on time earns a credit that cuts the effective FUTA rate
- Both are employer costs, not deducted from employee pay
How Fintra handles it
Fintra payroll calculates FUTA and each state SUTA using the correct wage bases and your assigned rates, applies the FUTA credit for SUTA paid, and stops charging once an employee crosses each wage base for the year. The liabilities post to the ledger so these employer costs are visible and reconciled, including across multiple states.
- FUTA and multi-state SUTA computed on the right wage bases
- FUTA credit for timely SUTA applied automatically
- Employer unemployment liabilities posted and reconciled
Worked example
Frequently asked questions
What is the difference between FUTA and SUTA?
FUTA is the federal unemployment tax with a single federal rate and wage base. SUTA is the state unemployment tax, with rates and wage bases that vary by state and by the employer experience rating. Both fund unemployment benefits and are generally paid by the employer.
Who pays FUTA and SUTA?
Employers, in almost all cases - these are employer taxes not deducted from employee wages (a few states require a small employee SUTA contribution). They are a cost of having employees, on top of the employer share of FICA.
What is the FUTA tax credit?
Employers who pay their state SUTA on time can claim a credit of up to 5.4% against the 6.0% FUTA rate, reducing the effective FUTA rate to as low as 0.6%. This links the two taxes and rewards timely state payments.
What is an experience rating for SUTA?
States set each employer SUTA rate partly on its history of unemployment claims - more former employees drawing benefits generally means a higher rate. Managing turnover and claims can therefore lower SUTA cost. Rates and wage bases differ by state.
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