Unemployment taxes—FUTA (Federal Unemployment Tax Act) and SUTA (State Unemployment Tax Act)—are employer-paid contributions mandated by federal and state laws to fund unemployment insurance programs. These taxes do not appear on employees’ paystubs but are included in your Payroll Register Report, generated by our payroll department for each payroll run. This report provides a detailed view of all payroll-related taxes, including those the employer is required to file and remit.
Why This Is More Noticeable in the First Quarter
Unemployment taxes are assessed only on the initial wages up to the taxable wage base for each employee. As a result:
- These taxes are more significant in the first quarter of the year, when all employees’ wages are below the taxable thresholds for FUTA ($7,000) and SUTA ($9,000 in Texas).
- As employees’ cumulative wages exceed these thresholds later in the year, unemployment taxes no longer apply for those individuals, leading to a natural tapering of these expenses in subsequent quarters.
Additional Details:
- How Long Taxes Are Paid: These contributions are made on the first few paychecks of the year, up to the taxable wage base. Once this threshold is reached, unemployment taxes no longer apply for that year.
- Rate Variability: The rate of unemployment tax varies based on several factors, including:
- The current demand on the unemployment insurance pool.
- Your company's specific history of unemployment claims.
- Other economic factors affecting the state and federal insurance funds.
State Unemployment Tax (SUTA) in Texas:
- The rate varies annually and is determined by the employer’s experience rating (claims history) and the balance of the state’s unemployment fund.
- Implemented: SUTA in Texas has been in place since 1936, following the establishment of the Texas Unemployment Compensation Act.
- Purpose: The tax supports unemployment benefits for workers in Texas, providing temporary financial assistance to individuals who lose their jobs through no fault of their own.
- Employer-Paid: Like FUTA, SUTA is entirely employer-funded.