State Unemployment Tax Act Avoidance

State Unemployment Tax Act (SUTA) dumping is a form of tax avoidance or unemployment insurance (UI) tax rate manipulation through which employers “dump” higher UI taxes by attempting to obtain a lower rate. SUTA dumping occurs when employers manipulate their UI tax rate and/or payroll reporting to owe less in UI taxes. (UI taxes are based primarily on an employer’s individual experience with unemployment insurance claims and can vary widely.)

Iowa aggressively pursues employers who engage in various tax avoidance and tax manipulation practices. These illegal and deceptive practices cost taxpayers millions of dollars each year.

Some employers and financial advisors have found ways to pay lower UI state taxes by manipulating the state systems that rate an employer's historical experience with UI claims. Most frequently, these schemes involve merger, acquisition or restructuring, especially involving the shifting of workforce resources and/or payroll.

Employer's Unemployment Insurance Experience

All states operate experience rating systems in order for employers to receive credit against the Federal unemployment tax. The more UI benefits that are paid to your former employees, the higher your unemployment tax rate will be (up to a maximum established by state law).  

Your UI tax experience as an employer is based on:

• taxable wages.
• contributions paid into the UI Trust Fund.
• benefit payments to former employees.

Experience rating systems help employers by:

• ensuring an equitable distribution of costs of the UI program.
• encouraging workforce stabilization.
• providing an incentive for employers to fully participate in the UI program.

 SUTA dumping is harmful because it:

• compromises the integrity of the UI system.
• results in an uneven playing field.
• adversely affects tax rates for all employers.
• costs the UI Trust Fund millions of dollars each year.

Affects of SUTA Dumping

SUTA dumping hurts everyone because, as a result, employers, employees and taxpayers must make up the difference in higher taxes, lost jobs, lost profits, lower wages and higher costs for goods and services. Employers SUTA dump when they move employees from high-rate UI tax accounts to new, lower rate tax accounts. In the process, accrued charges in the original accounts are left behind and are not picked up by the new accounts. If employers don't pay the charges they incur, the costs instead are spread among all employers. ​

Identification and Enforcement

Iowa Workforce Development (IWD) utilizes sophisticated fraud detection software and other analysis tools to identify potential violators. IWD will vigorously and comprehensively investigate those employers engaging in SUTA dumping.

Iowa’s laws apply a penalty contribution rate of two percent for the current year and two subsequent years. Interest will accrue on unpaid penalty contributions in the same manner as regular contributions.

Report Suspected SUTA Dumping

To report SUTA dumping or for additional information, please contact an Unemployment Insurance Manager.