State Unemployment Tax Act (SUTA) Overview with emphasis on Texas

If you are currently planning to launch your own business then it pays to know your responsibility as an employer, especially in terms of taxes. One of the main financial responsibilities of employers is the State Unemployment Tax Act or better known as SUTA. SUTA generally describes State Unemployment Tax required on employers. Simply put, employers are held responsible for paying state as well as federal unemployment taxes for unemployment. The tax payment cannot be included on employee’s payroll deduction, and is a cost borne by the employer. SUTA is a different obligation from FUTA, but you usually have a reduced rate on SUTA, because of the credit you receive for paying into FUTA.

The wage limits and rates often vary from one state to another. For more information about your state unemployment tax, it is recommended that you consult the local laws. We have some detailed information for Texas employers below, and can help you with this portion of your payroll service. The majority of states require employers to pay unemployment insurance taxes for state-federal unemployment to fund their state-federal unemployment coverage or insurance programs.

Texas State Laws

Employer must contribute based on the amount of payroll they have paid. Most states require businesses to pay state and federal unemployment tax once they exceed $1500 in the quarterly wages. SUTA for the state of Texas is capped at $9000 in wages for each employee. As well, employers have to contribute if there is an employee (s) who has worked for at least twenty weeks in a year. In Texas the rate an employer pays is based off of five factors: general tax rate, replenishment tax rate, unemployment obligation assessment rate, deficit tax rate, and employment and training investment assessment. The general tax rate is the experience portion based on the history your company has of former employees claiming unemployment with the State of Texas that would be charged to your account. You don’t have an “account” with the state per se, which you can go into and take money out of, but your account represents all the transactions of you contributing to the fund based on wages paid, and then employees making claims for unemployment which are administered by the State of Texas, which are called chargebacks. Texas uses a past three year period to calculate your general tax rate. GTR= (Three years of chargebacks / Three Years of Taxable wages) * Replenishment rate. If you had no chargebacks your rate could be zero for the general tax rate.

The replenishment rate is a flat amount paid by all employers in the State of Texas to pay for benefits which were not charged to any specific employer. For 2016 the amount of this rate is .30. The Unemployment Obligation Assessment rate has two components, and it is used to pay bond obligations and pay the interest on loans the FUTA made to the state to pay unemployment benefits which the state fund may have previously not had the money to pay. For example, during the last economic downturn FUTA loaned money to many SUTA funds are the nation, and then the states owed the interest back to FUTA. Texas currently does not owe any loans to FUTA so the rate is zero, but the rate on the bond obligation portion is currently one, as of 2016. The deficit tax rate is enforced if SUTA is below a minimum level the legislature has mandated. It is currently at zero, because the SUTA fund is above the minimum. The final component is the employment and training investment assessment, and it is used for training of the workforce in the state. The rate is currently .1 of wages paid by an employer.

Your effective tax rate is ETR= General rate + Replenishment rate+ Obligation Assessment Rate +Deficit Rate +Employment and Training Investment Assessment. The minimum rate in the State of Texas is currently .45, and the maximum is 7.47percent. For example, if you have the minimum rate and an employee earns $30000 in on year your cost for Texas SUTA is 9000*.0045=$40.50. If your company is at the maximum the rate is $672.30. That is a pretty substantial difference.  New employers in Texas who do not have a rate to use start at a rate of 2.7%. After four full calendar quarters an interim new rate is established for the employer based on taxable wages paid, timeliness of payments, and any chargebacks.

Payments and payroll information must be submitted to the State of Texas for SUTA on a quarterly basis, and we can help you with this type of payroll service.

More General State information

Every state is generally active in terms of monitoring their employers. This is done to ensure that employers will not engage in SUTA dumping. SUTA dumping is a method used to avoid UI (unemployment insurance) payroll taxes contribution or to avoid the tax itself. SUTA dumping happens when employers purposely miss-classify their own employees as mere independent contractors. Through which they will be able to evade their state tax responsibilities. Sometimes manipulations also involve merger, restructuring or acquisition schemes, specifically those that involve workforce resource shifting. In addition, employers also often try to avoid their tax accountabilities by establishing new companies or forming a shell company to obtain a lower rate then switch the employees over to the new company to take advantage of the lower rate.

SUTA dumping hurts all the concerned parties. Taxpayers, employees, and employers who contribute, because higher rates are required by those who are following the law to ensure the SUTA fund remains stable in the state.

If you are looking for someone to help provide you with help on SUTA and all the facets involved in it contact us for payroll services.

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