What is SUI (State Unemployment Insurance)?

State unemployment insurance (SUI) is a tax-funded program by employers that provides short-term benefits to workers who have lost their jobs. This tax is required by state and federal law. Unemployed workers receive these benefits on the condition that they are looking for a new job. The purpose of the benefits is to meet the basic needs of unemployed workers until they find a new job.

Is SUI a payroll tax?

Yes, state unemployment insurance is part of payroll taxes. The specific SUI tax rate varies depending on state requirements. For more information about specific state tax rates, visit your state's website  .

Who pays SUI?

Employers are responsible for state unemployment insurance tax for their employees. The amount of SUI a company pays depends on the SUI rates they are eligible for. Nearly all companies are required to pay this tax by law, but there are a few rare exemptions.

Most employees don't have to pay SUI, except in Alaska, New Jersey, and Pennsylvania.

Who is eligible for unemployment benefits?

Anyone who quits a job or is fired due to misconduct is not eligible for these benefits, but other workers may be eligible if their situation meets the terms of state unemployment insurance. For example, someone who is fired or who leaves their job because of health problems may be eligible for SUI.

Is my company required to pay tax for SUI?

Employers are not required to pay state unemployment insurance tax on the wages of an employee under the age of 21. Otherwise, nearly all companies must pay SUI tax in any state where the company has employees.

However, some companies are exempt from paying SUI, such as charitable organizations. A charitable organization typically must be a 501(c)(3) to be tax exempt, but laws vary by state. 501(c)(3) organizations are also  tax exempt under federal law.

Differences Between Federal and State Requirements

Unemployment insurance is funded at the federal and state levels. Federal contributions to the fund are paid according to FUTA.

Under FUTA, a company must pay unemployment tax on the first $7,000 its employee earned while working for the company. Once an employee earns more than $7,000, the company does not need to pay FUTA tax.

FUTA tax rates change each year, but for 2020 the tax is 6 percent. The rate is reduced to 0.6 percent for most companies because of the credit earned for paying SUI.

Companies must also pay unemployment tax according to their state's requirements. State requirements are set by the state government and rates vary by location. Most SUI tax rates are 0 to 11 percent.

SUI Rates: Where to Find Them?

State unemployment insurance tax rates vary by state. You can find these rates on your state's website.  When contacting your local workforce agency, ask for the employment security tax section to get specific answers about SUI rates within the state.

How do you calculate your business's SUI tax rate?

State unemployment insurance tax rates vary by state. Each state sets the rate based on:

• Pay base for that State
• Number of former employees applying for unemployment benefits

The wage base is the maximum amount of taxable income in a calendar year. Each state has a different wage base that can change depending on the year. If more of your former employees have filed for unemployment, your business's SUI tax rate may increase.

New companies get a ""new employer rate"" for SUI. This rate will change each year, depending on how many employees file claims. Most new employer rates are 2 to 4 percent.

Is SUI tax-deductible?

Both FUTA and SUI taxes are tax-deductible for employers. Most of these taxes can be entered on line 23 of the Schedule C form when filing the annual tax return form.