SUI (State Unemployment Insurance)

What is SUI (State Unemployment Insurance)?

State Unemployment Insurance is a type of unemployment benefits program run on a state-federal level that is funded by taxes. Each state in the U.S. has a separate unemployment insurance program. Many people refer to state unemployment insurance as simply SUI or unemployment benefits. The objective of SUI is to help eligible workers who have been separated from their jobs or have lost their jobs that were not their fault. This means that, for example, a person who was laid off work because of misconduct or negligence or has voluntarily quit their job may not be eligible for unemployment benefits. Individuals who are actively seeking employment opportunities but have not been hired due to a lack of available jobs are eligible for unemployment benefits. 

Who is eligible for SUI (State Unemployment Insurance)?

Although each state has its unemployment insurance program, they all follow the same guidelines that are set by federal law. According to the Department of Labor, a person is qualified to receive unemployment insurance if:

• They are unemployed and it is not their fault;
• And, they meet the work and wage requirements of the state. Usually, the state requires wages earned in a specific period or ”base period.”

SUI (State Unemployment Insurance) and FUTA (Federal Unemployment Tax Act) 

Before we differentiate SUI and FUTA, remember that both of them have the same purpose which is to provide assistance with unemployment insurance benefits to eligible workers. The funds for FUTA are used to oversee the government’s part in overseeing the unemployment insurance programs of all states. Consequently, SUI functions at the state level. 

Now, let’s talk about tax wage rates. In 2021, the FUTA tax rate is 6% and applies to the first $7,000 the employer pays to each employee as annual wages. This is paid only by employers which means that it is not to be withheld from the paycheck of employees. 

On the other hand, there is no uniform SUI tax wage rate for all states. It is assigned by the state and may be different from one employer to another. The reason for this is that each state sets their tax rates for employers which are paid to the state department of labor. It is based on experience ratings or how much experience they have as an employer which can change every year after an annual assessment. 

If you are an employer, it is best to stay updated with your state’s tax requirements by checking your state’s workforce agency website.

Who needs to pay SUI (State Unemployment Insurance)?

Many people will ask if state unemployment insurance is a payroll tax. The straight answer to this is yes. In the United States, the responsibility of paying unemployment insurance tax usually rests on the employers. However, there are three states that, aside from employers, also require employees to pay unemployment insurance. These states are Alaska, New Jersey, and Pennsylvania. The specific amount of unemployment taxes can vary depending on the state. 

Furthermore, some businesses may be exempted from paying unemployment insurance. Examples of such are nonprofit organizations and educational institutions. A charitable organization must be a 501(c)(3) to be exempt. Keep in mind that the rules on exemption may vary from state to state. Again, it is important to check your state laws. 

Is SUI (State Unemployment Insurance) considered tax-deductible? 

Yes, both the Federal Unemployment Tax Act (FUTA) tax and SUI are tax-deductible for employers.