Research shows that the biggest reason startups fail is because they run out of money.
Staying on top of your business finances requires an understanding of your spending, labor costs, and even your tax liability. After all, when you set aside enough for taxes and file your returns on time, you can avoid hefty fines that hinder your startup’s growth.
So when you hire your first employee, don’t forget to plan for employment taxes too. Here’s what founders should know about state unemployment insurance taxes:
- What is the state unemployment insurance tax?
- What’s the difference between the federal and state unemployment tax?
- Who pays state unemployment insurance tax?
- How to calculate your SUI tax
- 2024 SUI tax rates by state
- How to register your startup as a new employer
- How to file and pay SUI tax
- Put your state taxes on autopilot with Warp
What is the state unemployment insurance tax?
The state unemployment insurance (SUI) tax is a payroll tax levied on employers. It’s often called the SUTA (State Unemployment Tax Act) tax, but some states also refer to it as a reemployment tax or employment security tax.
The funds raised from this tax cover the stipends paid to eligible workers who lose their jobs through no fault of their own. Unemployment benefits are paid out weekly until the person finds new work, or until they reach the end of the compensation period (which can last up to 26 weeks).
Generally, only employees who are laid off or lose available work are eligible for unemployment benefits. Those who voluntarily quit or are fired for misconduct don’t receive these benefits unless their situation meets the state’s conditions. However, companies can challenge an unemployment claim if they believe the former employee is ineligible or provided inaccurate information.
What’s the difference between the federal and state unemployment tax?
The unemployment insurance program in the United States is funded at the federal and state levels through the FUTA (Federal Unemployment Tax Act) tax and the SUI tax.
Under FUTA, companies pay 6% in taxes on the first $7,000 each employee earns annually. This $7,000 threshold is the maximum amount of an employee’s wages that can be taxed, otherwise known as the taxable wage base. Once the employee earns over $7,000, the employer doesn’t need to pay any more FUTA taxes for that worker.
Employers who pay their SUI taxes in full and on time may be able to lower their FUTA tax rate to as low as 0.6%. Learn more about the FUTA credit reduction by visiting the Internal Revenue Service (IRS) website.
In addition to the FUTA tax, employers that meet their state’s requirements pay SUI taxes. These tax rates vary by state but typically range from 0% to 15%.
Who pays state unemployment insurance tax?
If your startup pays FUTA taxes, you’ll likely pay SUI taxes as well. State unemployment taxes are required for companies that meet one of the following conditions:
- Hire one or more employees who work 20 or more different weeks in the current or previous year
- Pay at least $1,500 in wages in any calendar quarter during the current or previous year
In nearly all states, employers are the only ones that pay into the state’s unemployment insurance program. However, employees in Alaska, New Jersey, and Pennsylvania are also expected to make SUI contributions.
Certain companies — including government employers, educational institutions, charities, and nonprofit religious organizations — are generally exempt from SUI taxes. If you hire your parents, your spouse, or any employee under the age of 21, their wages are also not subject to state unemployment taxes.
Note that these exemptions vary by state, so you’ll want to check with your tax advisor or state tax authority for specifics.
How to calculate your SUI tax
A company’s SUI tax rate is based on its industry, the number of years it has contributed to the state’s SUI program, and the number of unemployment claims it receives (also known as its experience factor).
Since new employers have not made any contributions or accepted unemployment claims, they’re assigned a standard tax rate when they register with the state (more on this later). This new employer rate typically ranges between 2% and 4%. After they build up a history of SUI contributions and unemployment claims, these businesses are assigned a new tax rate.
Once startups receive their SUI tax rate, they can calculate their tax liability themselves or use payroll software to do it for them.
Let’s say Fundsphere, a startup headquartered in New York, hires its first employees this year. To keep things simple, we’ll also assume that all of the company’s employees work in the state and earn more than the wage base. To get Fundsphere’s annual tax liability for each employee, multiply the new employer rate (4.1%) by the state wage base ($25,000).
4.1% x $25,000 = $1,025
Fundsphere can then expect to pay $1,025 in SUI taxes for each employee.
Keep in mind that employers pay SUI taxes in every state their employees work from. If your workforce is spread out across multiple states, you must calculate and pay SUI taxes in each state.
But because miscalculating your SUI tax liability can result in high penalty fees, it might be best to leave this complicated task to your software.
2024 SUI tax rates by state
If your startup must pay SUI taxes in multiple states, use this chart to help you estimate your tax liability for each one.
| State | New employer rate (for non-construction businesses) | Experience rate range | Taxable wage base |
|---|---|---|---|
| Alabama | 2.7% | 0.2% to 5.4% | $8,000 |
| Alaska | 1% - 1.16% | 1% to 5.4% | $49,700 |
| Arizona | 2% | 0.05% to 14.03% | $8,000 |
| Arkansas | 1.9% | 0.1% to 5% | $7,000 |
| California | 3.4% | 1.5% to 6.2% | $7,000 |
| Colorado | 3.05% | 0.81% to 12.34% | $23,800 |
| Connecticut | 2.5% | 1.1% to 7.8% | $25,000 |
| Delaware | 1.2% | 0.3% to 6.5% | $10,500 |
| Florida | 2.7% | 0.1% to 5.4% | $7,000 |
| Georgia | 2.7% | 0.04% to 8.1% | $9,500 |
| Hawaii | 3% | 0.2% to 5.8% | $59,100 |
| Idaho | 1.231% | 0.352% to 5.4% | $53,500 |
| Illinois | 3.95% | 0.85% to 8.65% | $13,590 |
| Indiana | 2.5% | 0.5% to 9.4% | $9,500 |
| Iowa | 1% | 0% to 7% | $38,200 |
| Kansas | 2.7% | 0.16% to 6% | $14,000 |
| Kentucky | 2.7% | 0.3% to 9% | $11,400 |
| Louisiana | The average rate for employers in your industry (with a minimum rate of 1%) | 0.09% to 6.2% | $7,700 |
| Maine | 2.32% | 0.28% to 6.03% | $12,000 |
| Maryland | 2.6% | 0.3% to 7.5% | $8,500 |
| Massachusetts | 1.87% | 1.023% to 15.599% | $15,000 |
| Michigan | 2.7% | 0.06% to 10.3% | $9,500 |
| Minnesota | 1.1% to 9% | 0% to 8.9% | $42,000 |
| Mississippi | 1% in the first year of liability, 1.1% in the second year, and 1.2% in the third and all subsequent years until eligible for an updated rate | 0% to 5.4% | $14,000 |
| Missouri | 2.376% | 0% to 5.4% | $10,000 |
| Montana | 1.3% to 2.1% | 0% to 6.12% | $43,000 |
| Nebraska | 1.25% | 0% to 5.4% | $24,000 |
| Nevada | 2.95% | 0.25% to 5.4% | $40,100 |
| New Hampshire | 1.7% | 0.1% to 7.5% | $14,000 |
| New Jersey | 3.4% | 1.2% to 7% | $42,300 |
| New Mexico | 1% | 0.33% to 6.4% | $31,700 |
| New York | 4.1% | 2.1% - 9.9% | $25,000 |
| North Carolina | 1% | 0.06% to 5.76% | $31,400 |
| North Dakota | 1.09% to 6.08% | 0.08% to 9.68% | $43,800 |
| Ohio | 2.7% | 0.4% to 10.1% | $9,000 |
| Oklahoma | 1.5% | 0.3% to 9.2% | $27,000 |
| Oregon | 2.4% | 0.9% to 5.4% | $52,800 |
| Pennsylvania | 3.5% | 1.419% to 10.3734% | $10,000 |
| Rhode Island | 1% | 1.1% to 9.7% | $29,200 |
| South Carolina | 0.41% | 0.06% to 1.576% | $14,000 |
| South Dakota | 1.2% or 1% | 0% to 8.8% | $15,000 |
| Tennessee | 2.7% | 0.01% to 10% | $7,000 |
| Texas | 2.7% | 0.25% to 6.25% | $9,000 |
| Utah | 0.3% to 7.3% | 0.3% to 7.3% | $47,000 |
| Vermont | 1% | 0.4% - 5.4% | $14,300 |
| Virginia | 2.5% | 0.1% to 6.2% | $8,000 |
| Washington | 90% of the average rate of all businesses in your industry (with a minimum rate of 1%) | Up to 6% | $68,500 |
| Washington DC | The average contribution rate of all employers during the previous year or 2.7%, whichever is higher | 1.9% to 7.4% | $9,000 |
| West Virginia | 2.7% | 1.5% to 8.5% | $9,000 |
| Wisconsin | 3.05% for small non-construction employers with taxable payroll under $500,000 | 0%-12% | $14,000 |
| Wyoming | 0.9% to 8.5% | 0.09% to 8.5% | $30,900 |
How to register your startup as a new employer
Before an employer can file and pay SUI taxes in any state, they must register their business with the state’s tax authority. If you have employees working in multiple states, you’ll need to register with each state.
Go to the state's website to register your business and set up your state tax account. You’ll need to fill out an online application form or log into an online portal to complete your registration, although some states allow you to submit a paper form instead. Once you’ve registered your startup with the state, you’ll be assigned a tax account number and a new employer tax rate.
Note that you may be required to set up a tax account for your startup before you hire any employees. So, check your state’s hiring regulations before putting up any job postings.
How to file and pay SUI tax
Employers typically file and pay SUI taxes by the last day of the month after the end of every calendar quarter (April 30, July 31, October 31, and January 31).
The form you’ll use to file your SUI taxes varies from state to state, so check with your state tax agency for details.
Most states allow you to file your SUI taxes electronically. If this is the case for your state, you can do so through the same online portal you use to register your business as a new employer. If you need to file by mail, you can find more details on this — including what tax forms to use and what address to mail your returns to — on your state’s employer website or new employer information manual.
In the three states where employees must also make unemployment tax payments, companies should withhold these funds from each employee’s paycheck. Employers then pay the employee’s share of SUI taxes when they file their quarterly report with the state.
Put your state taxes on autopilot with Warp
Scaling your startup is an exciting endeavor, but that also means your tax responsibilities grow alongside it — right? Well, not necessarily.
Warp’s all-in-one payroll and compliance software fully automates your state payroll tax registration and filings so you can focus on building your business. All you need to do is input the state you want to hire employees in, and our platform will do the rest.
To see for yourself how simple and efficient this process is, request a demo today.
