Glossary of Human Resources Management and Employee Benefit Terms
State unemployment insurance (SUI) is a tax-funded program by employers to give short-term benefits to workers who have lost their job. This tax is required by state and federal law.
An unemployed worker receives these benefits on condition that they’re looking for a new job. Benefits are meant to subsidize the former employee’s basic needs in the interim period.
Employers are responsible for SUI tax for their own employees.
The amount of SUI the company pays is dependent on the SUI rates they’re eligible for. Almost all companies are required by law to pay this tax, but there are some rare exemptions. Most employees do not have to pay SUI, except in a few states like Alaska, New Jersey, and Pennsylvania.
Anyone who quits or is fired for misconduct is not eligible for these benefits, but other workers can be eligible if their situation aligns with the stipulations of SUI.
Someone who is laid off from their job or leaves their job because of health problems could be eligible for SUI.
Employers are not required to pay SUI tax on wages for an employee who is under the age of 21. Otherwise, almost all companies must pay SUI taxes in any state where the company has employees.
However, some companies are exempt from paying SUI, such as charitable organizations.
A charitable organization must generally be a 501(c)3 to be exempt from the tax, but laws vary by state. 501(c)3 organizations are also exempt from FUTA tax under federal law.
Unemployment insurance is funded at the federal and state level. Federal contributions to the fund are paid according to the Federal Unemployment Tax Act (FUTA).
A company must pay unemployment tax on the first $7,000 an employee earns while working at their company. After an employee earns more than $7,000, the company is no longer required to pay the FUTA tax.
FUTA tax rates vary by year, but the current tax for 2019 stands at 6 percent. This rate is reduced for most companies to 0.6 percent, because of credits earned for paying SUI.
Companies also must pay unemployment tax according to their state requirements (SUI). State requirements are dictated by the state government and rates vary depending on location. Most SUI tax rates are 0-11 percent.
SUI tax rates vary by state. Rates can be found on each state’s Department of Labor website, or on various guides to SUI tax rates online.
If a company contacts their Department of Labor, they can ask for the Employment Security Tax Section to get specific answers about SUI rates within the state.
SUI tax rates vary by state. Each state sets a rate depending on industries, experience, and more.
Companies need to make sure they’re compliant with SUI rates by using an online state unemployment insurance calculator. They also need to know several factors for calculating their tax rate, including:
State where your business is located
Number of employees
The average annual salary of each employee
Current SUI rate
Possible SUI rate
The wage base is the maximum amount of taxable earnings in a calendar year. Each state has a different wage base that may change by the year. SUI may change depending on how many of a company’s former employees have filed for unemployment.
Newer companies get a “new employer rate” for SUI. This rate will change each year, depending on how many employees file a claim. Most new employer rates are 2-4 percent.
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 filling out annual tax return forms.
Nobody likes to pay taxes, but, of course, there are consequences for non-compliance. SUI gives downsized employees a chance to get a new job while still having funds coming in. It’s part of the price of doing business.
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