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State Unemployment Tax Act Dumping

State Unemployment Tax Act (SUTA) dumping is a tax evasion scheme to manipulate an employer’s Unemployment Insurance (UI) rate to lower their UI taxes. Typically, this occurs when an employer transfers payroll from an existing company to a new company in order to reduce their UI tax rate. SUTA dumping is also referred to as tax rate manipulation.

The Impact of SUTA Dumping

Under the experience rating system, employers with higher number of unemployment claims have higher unemployment tax rates than those with fewer claims. When employers don’t pay their fair share by using schemes like SUTA dumping, they shift their costs to other employers to make up for the unpaid tax.

SUTA Dumping Hurts Everyone

Employers and employees make up the difference in higher taxes, lost jobs, lost profits, lower wages, and higher costs for goods and services.

SUTA dumping:

  • Costs the UI trust fund millions of dollars each year.
  • Negatively affects tax rates for all employers.
  • Creates inequity for compliant employers.
  • Eliminates the incentive for employers to avoid layoffs.
  • Compromises the integrity of the UI system.

Employers who participate in SUTA dumping or other rate manipulation schemes knowingly misrepresent facts about their business. It is illegal under California law to knowingly make false statements and leave out basic facts on UI tax documents in order to reduce UI taxes.

There are both federal and state laws that combat SUTA dumping:

SUTA Dumping Prevention Act of 2004: This federal law requires each state to pass laws to stop employers from lowering their UI contribution rates unfairly and imposes penalties.

California’s Assembly Bill (AB) 664:

  • Fines employers who are caught illegally lowering their UI rates. They will be required to pay at the highest rate provided by law plus an additional 2 percent.
  • Requires the greater of a $5,000 penalty or 10 percent of underreported contributions, penalty and interest for anyone who helps another person or business violate California's UI rate and reporting laws.
  • Specifies that whenever an employer transfers its business to another employer, the reserve account will be transferred if they are under common ownership, management, or control. If this is done for the purpose of getting a lower UI rate, the transfer will be denied.

Note: Find the latest additions and amendments to AB 664.

EDD actively pursues and prosecutes employers who participate in SUTA dumping and other tax evasion schemes. We have the authority to subpoena records and people in our investigations. We also educate employers and tax advisors to prevent cheating.

If you think someone is avoiding their unemployment taxes, report it right away. You can provide:

  • Employer name, address, and telephone number.
  • Employer account number.
  • What they are doing.
  • When they started doing it.
  • Your name, address, and telephone number (optional).

Report Payroll Tax Fraud:

  • Call: 1-800-528-1783
  • Fax: 1-916-227-2772

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Use e-Services for Business to manage your employer payroll tax account online.

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Contact Us

If you have questions, Contact Payroll Taxes. You can also contact the Taxpayer Assistance Center at 1-888-745-3886 or visit your local Employment Tax Office.

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