Unemployment Insurance Tax (FUTA/SUTA): Alabama

Federal law and guidance on this subject should be reviewed together with this section.

Author: Vicki M. Lambert, The Payroll Advisor

Summary

• Alabama uses the Internal Revenue Service's (IRS's) 20-Factor Test to determine who is an employee for unemployment tax coverage purposes. See Test for Unemployment Tax Coverage.
• Alabama defines wages for state unemployment insurance (SUI) tax purposes as every form of compensation paid for personal services. Certain types of payments are specifically excluded. See SUI Taxable Wages.
• The SUI tax rates are based on one of four tax rate schedules established by law. Each employer's SUI rate is calculated annually based on the individual employer's previous experience as reflected by SUI contributions, taxable wages, benefit charges, and prorated charges and credits to their reserve account. This method of determining contribution rates is called experience rating. See Contribution Rates; Experience Rating Method.
• Alabama's anti-SUTA dumping law mirrors the federal model law, which punishes employers that try to illegally lower their UI rate. See SUTA Dumping.
• Alabama does not permit voluntary contributions but it does allow employers to apply for joint or combined accounts, under certain conditions. See Voluntary Contributions; Joint or Combined Accounts.
• Employers are required to submit quarterly contribution and wage reports online using Department of Industrial Relations (DIR) software, called eGov. The reports are due by the last day of the month following the end of each quarter. See Quarterly Reporting Requirements.
• An employer's account will be charged for overpayments caused by the employer's failure to properly respond to requests for information about benefit claims. See Benefit Overpayments.
• Multiple worksite reporting is mandatory in Alabama for employers that operate businesses from more than one location. See Multiple Worksite Reporting.
• Employers are required to keep payroll records that provide a true and accurate account of all workers and all payments made for at least five years. Records must include certain required information for each employee. See Recordkeeping Requirements.