Businesses need to stay vigilant as state unemployment tax comes into focus | Business Insurance

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Leadership in a high-growth technology company comes with many opportunities to learn, expand, and change the status quo. It also provides key insights into budget and business trends that leaders need to prioritize. Regulatory compliance is a constant challenge for organizations; it is also a problem that will not go away.

A central act in the spotlight this year is the State Unemployment Tax Act, or SUTA. As unemployment rates increased in 2020, state funds for unemployment insurance did the opposite. Now, replenishing those funds will come in part from higher payroll taxes for employers in many states. in a 2020 Article Predicting the skyrocketing jobless claims for businesses, Tax Foundation researcher Jared Walczak noted, “It may well be that no state is fully prepared for unemployment compensation claims on this scale, but some states are substantially better prepared than others.

2020 has come and gone, but now business leaders face a new tax playing field made more challenging by ongoing compliance complexities and state-specific tax regulations. Today’s financial leaders need to be aware of the potential pitfalls and streamline their compliance process, especially when it comes to taxes.

I strongly believe in leveraging technology to support your internal processes. Understanding what SUTA is, how it is calculated, the current tax rate for your state, and how to streamline your tax process internally is complicated. But it will help you lead your organization through the upcoming tax seasons.

What is SUT?

SUTA is a payroll tax imposed by employers. Also known as state unemployment insurance, or SUI. Taxes paid are placed in a state’s unemployment fund for use by employees who have separated from their employer. Failure to pay SUTA or SUI taxes can result in fines, fines or, in serious cases, criminal charges for the employer.

While the Federal Unemployment Tax, or FUTAPaid only by the employer, some states require additional money to be withheld from an employee’s salary for state unemployment taxes.

How is SUTA calculated?

Leaders should be aware that several factors are considered when calculating SUTA rates. These may include the age of your business, the turnover rate for your industry, and the number of former employees who have filed unemployment claims. SUTA taxes are paid to the state where the work is performed. Base salary and tax limits vary by state. Your SUTA fee may change annually based on state assessments. Each applicable state will send your business a notice that describes how they determine rates.

How do I determine the correct SUTA status of an employee?

For employees who work in only one state, you will pay SUTA taxes to the state where the employee’s services are located. But if your business has employees who work in multiple states, it gets more complicated. To determine the appropriate SUTA status for a multi-state employee, it may depend on where the employee’s “home base” is located: the state where the employee receives direction or control or possibly an employee’s state of residence. After determining the correct status for each employee, you will need to submit SUTA tax payments to each employee’s applicable state.

Where can I find the updated 2022 SUTA rate for my state?

As mentioned above, tax rates may vary. For example, construction companies may pay a higher SUTA tax rate. Also, each state sets up its state unemployment tax account and registers new employers differently. However, items such as proof of workers’ compensation insurance and an Employer Identification Number are needed for each employer. Without the right partners or systems, the process can be daunting for executives.

Business leaders can find the most up-to-date SUTA rate on their state’s website. There they will be able to access the complete and current SUTA tax rate informationeven when updates occur.

A little about FUTA credit reductions

Another important tax issue for today’s business leaders is FUTA. credit reductions. As you may know, several states took out loans from the federal government during the pandemic to help pay for unemployment claims and shortfalls in their reserves. Some of those states were “credit depletion states” or a state that “has taken out loans from the federal government to meet its state unemployment benefit obligations and has not repaid the loans within the allowed time.”

The result? Potential credit-reduced states are now at risk of increased FUTA taxes if they can’t repay loans by the US Department of Labor’s November 10, 2022 deadline. States at risk in 2022 include California , Colorado, Connecticut, Illinois, Massachusetts, Minnesota, New Jersey, New York and Pennsylvania, and the US Virgin Islands.

Rationalization of taxes with technology

Being a leader, especially in today’s changing business climate, can be challenging. Federal and state tax regulations are complex and, if not managed properly, can lead to heavy fines and undue stress on your tax, HR and executive teams. A tool that simplifies the tax administration process can streamline filings and ensure businesses remain compliant with their specific state and industry. But not all technology is the same. If it’s not intuitive and compliance-based, it can be more trouble than it’s worth.

In a December 2021 survey of 800 US C-level executives conducted by Pollfish on behalf of Paycom, 88% of respondents said they believe their organization has purchased technology that is not fully utilized by its employees.

A tax process that considers the digital and regulatory landscape should make the employee the point person to interact with and report your data, from benefits and taxes to time tracking and payroll. Anything analogous or out of reach for employees is at best inefficient and at worst detrimental to your company’s bottom line.

When today’s leaders have a clear understanding of requirements like SUTA and implement the right technology to help them manage their tax processes, they are prioritizing their internal processes and setting their business up for success long after tax season.

This article does not necessarily reflect the views of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or their owners.

Author Information

craig boelte He is Chief Financial Officer of Paycom.

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