Making sense of SUTA and FUTA

Have you noticed that a lot of tax and financial information is a bunch of alphabet soup? Today, we’re going to talk about SUTA and FUTA taxes, otherwise known as State Unemployment Tax Act taxes and Federal Unemployment Tax Act taxes.

SUTA

SUTA is the unemployment insurance fund for each state and every state has different rules for who qualifies. In Arkansas, our Department of Workforce Services manages unemployment. SUTA is paid quarterly and the employer cannot deduct the amount from the employee’s paycheck.

Each state also decides how much tax each employer must pay. For example, in Arkansas you only pay the tax on the first $10,000 of wages for each employee. New employers are assigned a rate of 3.2 percent so newer companies in Arkansas need to budget for $320 per each employee they have in a given year.

Beyond that, the tax rate for non-new companies will vary by the business and the rate could change each year based on a variety of factors, including how many claims you have against your unemployment account. If you lay off a lot of workers and they claim unemployment benefits, your rate will go up. If you don’t have any unemployment claims against you, your rate could potentially go down.

FUTA

Federal unemployment insurance taxes, along with the state unemployment tax systems, work together to compensate displaced workers. The federal eligibility requirements are that the recipient became “unemployed through no fault of their own, and meet certain other eligibility requirements.”

Employers must pay and report their FUTA tax payments on Form 940 annually and employers cannot collect or deduct FUTA taxes from their employees’ wages.

The amount that employers must pay into the federal unemployment system is a bit tricky. Technically, the rate is six percent on the first $7,000 for each employee. There is a 5.4 percent credit, however, effectively making the rate only 0.6 percent.

Let me help

Keeping track of who and how much you owe as an Arkansas employer is time-consuming and confusing for the average person. I love working with the numbers and helping clients complete the right forms to keep them in compliance! Give me a call.