What is SUI and what is it used for?
State unemployment insurance (SUI) is a program that provides temporary financial assistance for employees who have lost their job and are actively seeking new employment. This employer-funded state benefit is designed to cover the worker’s basic needs until they find another job.
Although SUI guidelines are established under federal law, each state maintains a separate program. Eligibility requirements, benefit amounts and the duration of benefits may vary among states.
Who qualifies for SUI benefits?
To qualify for this benefit, an employee must have been terminated due to a lack of available work or otherwise through no fault of their own. Depending on state guidelines, that may include workers who are laid off if their skill set is found lacking. Workers who are terminated for misconduct are not eligible for SUI benefits.
If an employee quits their job, they’re generally not eligible to file for SUI. However, depending on the state, a worker who quits due to health reasons may be eligible for SUI benefits.
Workers must be actively seeking new employment to qualify for SUI benefits. In some states, exceptions are made for workers who’ve left their jobs due to poor health.
Do employees have to pay SUI taxes?
In most states, funding for the state unemployment insurance program comes exclusively from employer-paid payroll taxes. Only three states — Alaska, New Jersey and Pennsylvania — require employees to contribute to SUI taxes and even in those states, employee contributions are minimal.
If an individual state requires employee contributions for SUI, the employer should withhold the applicable amount from the worker’s paycheck. This money should then be paid to the state in quarterly payments.
How much do employers have to pay in SUI taxes?
SUI tax rates vary widely by state and individual company, currently ranging from a minimum of zero in Iowa, Mississippi, Missouri and Washington, to a maximum of more than 20% in Arizona. Rates may differ from year to year due to periodic updates.
Overall tax rates are usually based on some or all of the following factors:
- The state’s wage base
- The type of industry and its turnover rate
- The company’s experience level as an employer
- How many of the company’s former employees have filed for unemployment benefits
For example, a company that’s had many former employees file for unemployment benefits will have a higher tax rate than a company that’s had fewer former employees file for benefits. New employers may also receive lower rates than companies with more experience.
States typically provide companies with a yearly assessment, which determines your rate. If you want more information, your state’s workforce agency can provide further details about your tax rates. When you call, ask to speak with the agency’s Employment Security Tax division.
If you want to calculate your potential premiums, simple SUI calculators, such as the Paychex State Unemployment Insurance Calculator, are available online. Most calculators require the following information to generate an estimate:
- Number of employees
- Average annual salary of workers
- The state where your business is based
- Your state’s SUI rate
How should state unemployment taxes be paid?
State unemployment taxes are usually paid quarterly. After you’ve estimated your tax liability, you should make a payment directly to the state, using your employer identification number (EIN) to identify your company. For additional information on payments, you can contact your state’s workforce agency.
What companies are exempt from paying SUI?
Although most companies are required to pay SUI taxes in states where they employ workers, there are several exceptions:
- Charitable organizations: Although laws vary by state, 501(c)(3) charitable organizations are typically exempt from the SUI tax. These organizations are also exempt from the Federal Unemployment Tax Act (FUTA) tax.
- Small businesses: Some states don’t require SUI taxes from businesses that employ only a few workers.
In addition, employers don’t have to pay state unemployment insurance tax for workers under the age of 21. Your state’s tax commission can provide more information on potential SUI exemptions and what they mean for your business.
Are SUI and SUTA the same?
SUI and SUTA are different names for the same program, which provides income for workers who have lost their jobs through no fault of their own. SUTA, which stands for State Unemployment Tax Act, exists in all states, but it may have different names. In many states, it’s known as State Unemployment Insurance or the SUI tax. In Florida, for example, it’s called the Reemployment Tax.
What’s the difference between the Federal Unemployment Tax Act (FUTA) and SUI?
The Federal Unemployment Tax Act (FUTA) is the federal equivalent of SUTA or SUI, which are paid at the state level. FUTA taxes, which are also paid by employers, fund the federal government’s oversight of state unemployment insurance programs. Plus, during periods of high unemployment, a state may borrow FUTA funds to cover benefits for unemployed workers in their state.
Hiring inhouse help
Understanding tax obligations and how they affect payroll can be challenging for SMBs who don’t have experience with state unemployment insurance and other ER taxes. Adding knowledgeable tax or HR professionals to your team can streamline the process for your business. Whether you hire a payroll specialist or consult with a tax accountant, make sure you find someone well-versed in the ins and outs of SUI, SUTA and FUTA so that you can stay compliant.
