What is the Federal Unemployment Tax Act (FUTA)?
FUTA is a federal law that requires employers to pay a payroll tax. This tax funds the federal government’s oversight and funding of unemployment insurance programs.
What is Virginia’s State Unemployment Tax Act (SUTA)?
This act requires employers in Virginia to pay into Virginia’s State Unemployment Insurance (SUI).
What’s the difference between FUTA and SUTA?
Why do we need a federal unemployment tax if we already have a state one? Or vice versa?
Think about it as an insurance system within another insurance system. Virginia’s SUTA only cares about its own Virginia’s unemployment fund. The federal government has to oversee all 50 states and their unemployment funds to make sure they remain solvent.
If Virginia’s unemployment fund became insolvent, meaning it could not pay out all unemployment benefits, then FUTA would fund it. FUTA would pool the resources of all the other states to take care of Virginia.
How does FUTA interact with SUTA?
Here’s the thing, if you pay your state’s unemployment taxes on time and in full, then you can reduce the federal unemployment taxes you owe.
The Virginia Employment Commission determines your SUTA tax rate based on various factors. But it can range from 0.1% to 6.2%.
FUTA has a standard tax rate of 6.0%, but if you pay your state unemployment taxes, then you can earn a 5.4% Federal tax credit. So instead of paying 6% you effectively only pay 0.6%.
How can you get this FUTA tax credit?
By staying compliant with all state and federal taxes. Let us help so you don’t have to worry about taxes or penalties.
