State Employment Taxes
An employer may withhold state income taxes unless the state does not have a personal individual income tax.
Seven states do not have a personal income tax. Two other states don't tax wages, but do tax interest and dividend income.
- New Hampshire (wages not taxed. Interest and dividends are taxed)
- South Dakota
- Tennessee (wages not taxed. Interest and dividends are taxed)
State Unemployment Taxes (SUTA)
For most states, SUTA tax is paid by employer. However, currently, Alaska, New Jersey, and Pennsylvania withhold unemployment insurance tax from employees' wages.
Employers generally report SUTA to their state by filing quarterly state unemployment tax returns. The tax is usually paid with the return.
The tax goes into the state's unemployment insurance fund which provides benefits to terminated employees who have filed successful unemployment insurance claims against their employer.
SUTA taxes are assessed against a limited amount of each employee's gross pay. The maximum gross pay subject to SUTA tax is generally the first $7,000 of gross pay paid to each employee.
Employer's SUTA Experience Rate
The initial SUTA rate assigned to an employer may be increased or decreased by the state over a period of time depending on the amount of benefits paid out of the state fund on behalf of the employer's terminated employees.
The adjusted SUTA rate is referred to as the employer's experience rate.
An employer with low turnover over a period of time will generally have its SUTA rate reduced, while an employer with high turnover may have its rate increased.
Unemployment Insurance Claims
When a terminated employee files for unemployment benefits, the state generally notifies the employer by mail about the claim to give the employer a chance to either accept or reject the claim.
If the claim is rejected by the employer, the ex-employee has a right to appeal. If an appeal is granted the employer may have to attend a hearing to present its case for rejecting the claim.
Tip: Find out what the rules are in your state for defeating a claim you feel is not justified. If you satisfy the rules, make sure you have evidence to support your case.
Sole proprietors, general partners, and members of an LLC treated as a partnership, do not pay state unemployment taxes on their self-employment income.
Sole proprietors, general partners, and member of an LLC treated as a partnership, are not considered employees of their business, and therefore, are not covered by state unemployment insurance.
If your business is incorporated and you're a working/shareholder, you're an employee of the corporation and will be treated the same as any other employee for employment tax purposes.
- Return to the Payroll Taxes Table of Contents to find related links.