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SUTA is an acronym for the State Unemployment Tax Act. SUTA Dumping is a form of tax avoidance or tax rate manipulation through which employers “dump” higher unemployment taxes by attempting to obtain a lower rate. SUTA dumping involves the manipulation of an employer’s unemployment tax rate and/or payroll reporting to owe less in unemployment taxes. Unemployment taxes are based primarily on the employer’s own experience and can vary widely.
An employer’s UI tax rate is based on the history of taxable wages, contributions paid into the UI Trust Fund, and benefit payments to former employees – in other words, the employer’s unemployment insurance “experience.”
Listed below are a few of the tax avoidance schemes used by businesses which are prohibited under the new SUTA Dumping law. Employing units should be aware that these practices constitute SUTA Dumping and that there are serious ramifications for engaging in these activities
Under the experience rating system, employers pay unemployment taxes at rates commensurate with claims activities by their employees. Employers with high unemployment activity pay higher unemployment tax rates, and employers with lower activity pay less. Employers who engage in SUTA Dumping (or other tax manipulation schemes) to avoid paying their fair share unfairly shift their costs to other employers. SUTA dumping is harmful because it:
SUTA Dumping hurts everyone – employers, employees and taxpayers make up the difference in higher taxes, lost jobs, lost profits, lower wages, and higher costs for goods and services. When employers SUTA “dump”, they move employees from their high-rate tax accounts to new lower-rated accounts. In the process, the accrued charges in the old accounts are left behind and are not picked up by the new accounts. These unpaid charges are not paid by the employer who incurred the charges, but instead are spread among all employers.
DWD will use sophisticated detection software and other analyses to identify potential SUTA dumpers. DWD will vigorously and comprehensively investigate potential violators to identify those employers engaging in SUTA dumping.
Indiana’s law provides for both civil and criminal penalties in the event of proven SUTA dumping.
No. This practice is commonly called “payrolling” and is already prohibited by state law since it involves an employer submitting false documents concerning who is an individual’s employer for unemployment purposes. If “payrolling” is uncovered, the penalty provision under the new SUTA law includes any violation of this chapter and thus, the penalties will apply to “payrollers” as well.
SUTA dumping hurts all Indiana employers. To report SUTA Dumping or for additional questions, please contact:
Indiana Department of Workforce Development
Indiana Government Center South
10 North Senate Avenue
Indianapolis, IN 46204