State unemployment tax act (SUTA) regulations require that employers pay a certain amount of taxes for each employee to help offset the financial burden of unemployment benefits on the state in which the company and employees are located. Employers are required to pay SUTA taxes in addition to federal unemployment tax act (FUTA) taxes. The amount due for SUTA taxes can be subject to change based on the number of former employees a business has that are receiving state unemployment benefits.

What is SUTA Dumping?

SUTA dumping is the act of transferring payroll from one company to another to avoid higher tax rates. This is typically done by creating shell corporations.

A business that faces a high unemployment tax rate will shift its payroll onto the shell corporation that holds a lower tax rate. The idea here is to offset tax payments by making it seem like more employees are working for the company with the lower tax rate, thereby avoiding higher taxes at the original company.

The Penalties for SUTA Dumping

According to the SUTA Dumping Prevention Act of 2004, engaging in the practice of SUTA dumping is illegal. Additionally, various states, including California, have state laws on SUTA dumping which make the practice illegal on the state level.

Being found guilty of SUTA dumping may result in criminal penalties, fines, fees, and additional charges. Both civil and criminal investigations may be involved in SUTA dumping cases.

Remaining in Compliance

Because of the potential for civil and criminal penalties, it’s important for business owners to not only avoid actively engaging in SUTA dumping, but also to avoid the potential for accidentally engaging in this practice. The use of a SUTA compliance tool found in a software suite can often help in these situations. Find the best SUTA compliance tool by visiting this website.

A SUTA compliance tool can monitor your payroll to show you where your liabilities exist and help you to balance your payroll across any companies that you own. This ultimately helps to avoid the potential for unknowingly engaging in SUTA dumping.

Read a similar blog about employee benefits here at this page.