Most employers pay two unemployment tax systems simultaneously — FUTA (federal) and SUTA (state). Here is how they interact.
FUTA: Federal Unemployment Tax
Rate: 6.0% on first $7,000 of each employee's wages. Net effective rate: 0.6% for most employers. Why lower: employers who pay SUTA on time and in full receive a 5.4% credit, reducing the effective rate to 0.6%.
FUTA funds the federal unemployment insurance system and state program loans.
SUTA: State Unemployment Tax
Rates vary by state and employer experience rating: - New employers: typically 1–4% (varies by state) - Established employers: 0.1–10%+ (based on claims history) - Wage bases: $7,000 (minimum federal) to $62,500+ (Washington State)
The experience rating system
Your SUTA rate is recalculated each year based on your layoff history: - Low layoffs → rate decreases ("negative experience") - High layoffs → rate increases ("positive experience" in the tax sense)
Employers who do extensive layoffs may lose the FUTA credit (credit reduction states).
Impact on hiring decisions
Before laying off, consider: even one unemployment claim can increase your SUTA rate for 3+ years. For a $100k salary with 2% SUTA, a 1% rate increase = ~$500/year per employee on the wage base.
Use the payroll tax calculator to compute your federal employer payroll taxes. Add state SUTA separately based on your state rate.