SUI Explained for Businesses
SUI stands for State Unemployment Insurance, which pays out benefits for unemployed workers. All employers are required to pay into their state’s unemployment fund. In some states, the SUI tax is known as SUTA or State Unemployment Tax Act. There’s also a federal tax, known as FUTA. Recently, we covered FUTA in a separate post.
When operating payroll, it’s crucial to stay on top of your tax responsibilities, including what you owe for your state’s unemployment fund. It’s important for all employers to understand the way SUI works and what their tax obligation is, so as to avoid costly fines and fees. In this post, we explain the basics, such as what SUI is for and how it differs from FUTA.
What is SUI for?
SUI pays employees who have lost their jobs through no fault of their own and are now seeking replacement employment. Generally, this benefit applies to those who were laid off and does not apply to those who were fired for misconduct or who quit. SUI and the related taxes are commonly referred to as reemployment taxes or unemployment benefit taxes.
When a laid-off employee claims unemployment insurance, they receive wage replacement pay from the home state’s unemployment agency. Typically, this pay only lasts until the employee reaches some limit as defined by the state or has found another job. If you don’t believe an employee is eligible for SUI, you can contest their request with the state. It is crucial to review all requirements, as they vary by state.
What’s the difference between SUTA tax and FUTA tax?
Both SUI or SUTA and FUTA (Federal Unemployment Tax Act) taxes are unemployment payroll taxes. Employers pay FUTA taxes to the federal government at a rate of 6% of an employee’s first $7,000 earned in taxable wages. This rate can be credited up to 5.4% depending on the amount an employer pays for SUI taxes. (And whether the state is repaying federal loans to a state’s unemployment requirements.) Depending on the state, FUTA liability can be as low as 0.06%. On the other hand, SUI is a varying rate unemployment tax that employers pay to the state.
How much does SUI cost?
Employers typically pay for SUI on a quarterly basis as part of their payroll taxes, with exception of Alaska, New Jersey, and Pennsylvania. In these three states, a segment of SUI taxes is also subtracted from employees’ paychecks. As a business owner, it is important to check your state’s regulations to ensure you file your company’s SUI documents correctly. Failure to report and pay the required amounts can lead to hefty fines from both the state and federal government. Continued noncompliance can lead to a tax lien, which can shut down your company.
How to Calculate SUI Tax
Every state directly taxes employers to help fund the state’s SUI. This tax rate is specific to your business and is based on a “wage base,” which is determined by every state. Your tax rate depends on your business type and the number of years you have contributed to the SUI. Additionally, your rate could be affected by experience and the number of former employees collecting unemployment benefits.
How did the SUI tax rate change for 2020?
As a result of the COVID-19 pandemic, millions of employees were laid off or furloughed for an indefinite time. If you’re an employer who had to make layoffs, it is possible your tax rates could increase in the future, but due to the unexpected impact of the pandemic, most states have created legislation that prevents this from occurring. It is important to review your state’s changes regarding this information.
How to Pay Unemployment Tax
To ensure compliance with the state laws, you must report your SUI tax liability to the state and make payments in a timely manner. In general, quarterly payments are required and are the most efficient payment option. To report and deposit your payments, use your employer account number. Most states also allow employers to file and pay these taxes online.
SUI taxes and FUTA can be confusing and complicated at times. As a business owner, you must review your specific state requirements to make sure you stay compliant.