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 * Home
 * Hiring resources
 * What is State Unemployment Insurance?

On This Page
 * What is SUI and what is it used for?
 * Who qualifies for SUI benefits?
 * Do employees have to pay SUI taxes?
 * How much do employers have to pay in SUI taxes?
 * How should state unemployment taxes be paid?
 * What companies are exempt from paying SUI?
 * Are SUI and SUTA the same?
 * What’s the difference between the Federal Unemployment Tax Act (FUTA) and
   SUI?
 * Hiring inhouse help


WHAT IS STATE UNEMPLOYMENT INSURANCE?



If you’re a small- or medium-sized business, it’s important to understand your
tax obligations as an employer. That includes state unemployment insurance
(SUI). Keeping up to date on state and federal guidelines can help you stay
compliant and reduce your risk of incurring unnecessary penalties. Learn the
basics of SUI, including who qualifies for benefits, the distinctions between
SUI, SUTA and FUTA, and how you can calculate your potential premiums.

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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.

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