SUTA stands for State Unemployment Tax Act, which is a payroll tax that employers are required to pay on behalf of their employees to their state unemployment fund. The tax is designed to finance the cost of state unemployment insurance benefits in the United States, which make up all of unemployment insurance expenditures in the country. The money collected from SUTA taxes goes into the state unemployment fund on behalf of employees who lose their jobs and need to collect unemployment benefits.

SUTA tax is experience-rated, which means that tax rates are firm-specific and update each year to reflect the cost of the benefits that the firms former employees have received recently. The taxable base is around $10,000 per employee, which is much less than the average yearly earnings of a given worker. This provides a modest incentive for firms to reduce unskilled and part-time work in favor of skilled and full-time work.

SUTA tax rates and taxable wage bases vary by state, and employers receive an assessment or tax rate that they are required to pay. The rate may be updated periodically and may increase for businesses in certain industries that experience higher rates of turnover. Employers should receive a yearly assessment from the state that determines their rate.

In general, employers pay SUTA taxes, but some states require that both the employer and employee pay SUTA taxes. For employees who work in only one state, SUTA taxes are paid to the state where the work takes place. For employees who work in two or more states, determining the correct state to pay SUTA can involve identifying the state where the employee has an office or where the employee receives direction from their employer.