State Unemployment Insurance Tax (SUTA)

State unemployment insurance (UI) tax, often called SUTA or SUI, is the state side of the unemployment system. Employers pay it into a state fund that pays benefits to eligible workers who lose their jobs. Rates, wage bases and filing rules are set by each state, so an employer with staff in several states can have several different calculations. This guide explains the common features and where the rules differ.

Who has to pay

The DOL notes that, generally, employers must pay both state and federal unemployment taxes if they pay wages of $1,500 or more in any calendar quarter, or if they had at least one employee on at least one day in 20 different weeks in a year. State law can differ. The DOL's July 2026 table shows that some states use that test, while others cover employers of any size or set a short-employment test. Because the rules differ, confirm coverage with the state agency as soon as you hire your first employee in a new state.

Coverage can also depend on who the worker is. Some officers, family members, seasonal workers and independent contractors are treated differently from state to state. A state agency can reclassify a contractor as an employee and bill the tax. See employee vs. independent contractor.

Taxable wage base

The wage base is the amount of each employee's yearly pay on which the tax applies. Federal FUTA uses $7,000. States may use more. Examples from the DOL's July 2026 table:

Wage bases change, often every year, and they can be indexed to average wages. Check your state agency's current figure rather than a table copied from another year.

Example. Assume a state has a $14,250 wage base and your employer rate is 3.0%. An employee who earns $40,000 produces state tax on only the first $14,250: $14,250 x 3.0% = $427.50. The rest of the employee's pay is not subject to that state tax.

How rates are set

Most states use experience rating. A rate is based on the benefits paid to former employees compared with the taxes the employer has paid, within a minimum and maximum rate set by state law. The DOL's table shows wide ranges, from near 0% for employers with no claims to double-digit rates in some states for the highest-cost employers. These ranges do not include surtaxes, penalties or non-UI assessments, which some states add.

A new employer has no history, so it receives a standard new-employer rate. The DOL's table lists base new-employer rates that mostly fall between roughly 1% and just over 4%, and it warns that higher rates may apply depending on industry or other factors in state law. Your rate notice from the state agency is the number to use, not a general chart.

Certain employers, such as nonprofits and governments, may have options in some states to reimburse the state for actual benefits instead of paying regular contributions. Ask the state before choosing. Deliberately shifting a payroll to a different entity to get a lower rate is a practice states target, so changes in ownership or structure should be reviewed.

Registering, reporting and paying

You register with the state workforce agency, which for Illinois is the Illinois Department of Employment Security (IDES). After registering, you file wage and contribution reports quarterly, usually by the end of the month after the quarter closes, though dates vary. Late reports and late payments bring penalties and interest, and unpaid state tax can reduce your federal credit.

Records generally include each employee's name, Social Security number and wages by quarter. Many states also expect you to answer wage and separation requests quickly when a former employee files a claim. Responding late can cost you the chance to contest the claim.

Connection to FUTA

You can claim the FUTA credit of up to 5.4% only if you paid state unemployment tax in full by the Form 940 due date and your state is not a credit reduction state. A late state payment can raise your federal bill. See Form 940 and FUTA.

Common mistakes

• Never registering in a state where an employee works from home.
• Using last year's wage base or rate after a rate notice arrives.
• Missing the state's quarterly report when no wages were paid.
• Ignoring a state rate notice with a protest deadline.
• Assuming a payroll provider registered for you in every state.

If workers are in several states, our multi-state payroll guide explains which state's unemployment system generally applies to each worker.

How we can help

We register employers with state unemployment agencies, file quarterly reports, check rate notices and respond to benefit-charge or audit letters. Learn more about our payroll services and our Illinois resources.

Frequently asked questions

General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.