SUTA stands for State Unemployment Tax Act in Indiana. This is the law that requires employers to pay into the unemployment compensation system. Employer contributions are added to the Indiana Unemployment Benefit Trust Fund, which then funds unemployment compensation for qualified applicants. The standard rate for new employers is currently 2.5% of the first $9500 that an employee earns. New businesses in most industries pay this rate for three years before it is reassessed.
Since unemployment compensation is handled jointly by state governments and the federal government, employers also need to understand the Federal Unemployment Tax Act (FUTA). The federal tax is 6% of the first $7000 an employee earns. Normally, employers receive a credit of 5.4% of this amount, so they’re actually responsible for paying only 0.6%. However, Indiana has not qualified for the full credit in recent years due to financial problems with the state’s unemployment trust fund, so Indiana employers may owe taxes at a higher rate.
What Requirements Does Indiana Impose for Unemployment Taxes?
There are several rules regarding unemployment benefits that Indiana employers need to follow. First, employers need to register with the Department of Workforce Development to pay their SUTA taxes. The employer needs to pay for unemployment benefits itself. It cannot pass the expense on to the employee as a wage deduction. Employers cannot discourage their workers from applying for unemployment compensation if they leave the company.
Determining the rate a particular employer needs to pay for unemployment insurance can be complicated. While most companies start at the standard rate of 2.5%, the rate varies based on the industry a business is part of and how many former employees are currently receiving benefits or have received benefits in the past. For example, construction companies pay a higher starting rate. The Department of Workforce Development can also increase the rate as a penalty. This happens if the employer doesn’t reply to a request for information, and that lack of information causes a former employee to receive benefits they didn’t qualify for. Rates can also be increased for other violations, like failure to provide certain mandatory reports.
Unlike other states, Indiana does not have a minimum for how many employees a business needs to have or how much those employees need to earn for the employer to be liable for unemployment insurance taxes. This means that as soon as a company has paid one dollar to one employee, the company is responsible for SUTA. SUTA taxes need to be paid quarterly, either online or with paper forms.
How Does a New Business Obtain a SUTA Number?
To comply with state law, employers need to register with the Department of Workforce Development. This needs to be done online. Employers start by creating an account through the Employer Self Service portal. To register, employers will need to provide:
- The employer’s FEIN (federal tax identification number)
- The employer’s legal name
- The employer’s NAICS code (which indicates its industry classification)
- The company’s mailing address
- The date of the first payroll payment
- The responsible party’s tax number
Once an employer has set up this account, they’ll be able to use it to file and pay their SUTA taxes as well. Businesses need to file SUTA taxes each quarter to avoid a penalty. If their situation changes and they no longer owe unemployment compensation taxes, they’ll need to ask the Department of Workforce Development to deactivate their SUTA account.
SUTA is just one aspect of managing payroll that can take up time and energy that you’d rather spend on other aspects of your business. ASAP Payroll can help. Contact us for a quote today.
