Business owners have many obligations, and one of the main responsibilities is ensuring that payroll is processed accurately and legally, especially payroll tax. Among the key components of payroll tax is state unemployment insurance (SUI).
State unemployment insurance is one of the many taxes that make up payroll taxes, and employers are required by both state and federal law to ensure this is paid. SUI is an employer-funded program that is designed to give workers short-term benefits and pay in the event that they lose their job by no fault of their own and under the condition that they are actively seeking new employment.
Employers are responsible for making sure this tax is withheld and paid quarterly. However, it’s not entirely as simple as it may seem, as within each state, the SUI tax rates vary. It’s important that employers and HR managers carefully calculate the proper, accurate SUI tax rate and amount according to their location. In this blog, we’re going to break down exactly what the state unemployment tax is and how it affects your business.
The state unemployment insurance tax, most commonly referred to as SUI, is a mandatory payroll tax that supports an employer-funded program to provide benefits to workers who qualify for unemployment benefits. Employers are responsible for withholding the accurate amount from an employee’s paycheck and ensuring SUI taxes get paid on time.
Yet, this isn’t a flat-rate tax rate across the country. Tax rates vary from state to state and even within the state, depending on a company’s industry and history of turnover. If your company has remote employees who live and work in a different state, the percentage of SUI taxes withheld from their paychecks will depend on which state they are located in, not the state your business operates in.
This program helps workers who were terminated through no fault of their own, such as being laid off, and are actively seeking new employment. Employees who quit their job or were fired for cause are not eligible to receive unemployment benefits.
And when it comes to calculating SUI tax rates, timing, industry, and location are all major key aspects that employers must pay attention to for an accurate SUI tax calculation.
The difference between the Federal Unemployment Tax Act (FUTA) and state unemployment insurance is that FUTA is a federal tax, and SUI is a state tax. SUI taxes are state-level taxes established by and administered by each individual state, whereas FUTA taxes are federal taxes established by federal law and administered by the IRS.
Unlike the SUI variable tax rate, FUTA tax rates and thresholds are uniform across the country. Currently, the FUTA tax rate is 6% on the first $7,000 of wages paid to each employee per calendar year. According to the Internal Revenue Service (IRS), employers generally must pay both SUI and FUTA taxes if they meet these requirements:
The most challenging aspect of navigating SUI taxes is determining the SUI tax rate that your company must pay. This can be complicated as many factors influence SUI tax rates, including which industry you're in, state regulations and your unemployment claims history.
As mentioned, each state has a unique SUI tax rate, and employers must ensure they’re abiding by this rate, or, if they have out-of-state employees, they must withhold the tax rate in concordance with the state the employee lives in and works out of.
To find the accurate SUI rate for your state, employers should sign up for a State Unemployment Tax Act (SUTA) account. You can do this by visiting the Department of Labor's (DOL) website, which has a page with the information you need to contact the contact for each state. You can register for an account by providing your business’s information, including your business’s EIN.
It is common for SUI tax rates to change annually for each state, which is something that employers are responsible for keeping up-to-date with. Most states typically send out their new tax rates in December. Additional factors that affect SUI rates changing and increasing are if your business no longer qualifies for the “new employer” rate or if you have former employees filing for unemployment. If you have a number of previous employees filing for and receiving unemployment benefits, this can cause your SUI rates to rise.
You can’t control your state’s changing SUI rates; however, reducing SUI tax rates is possible if you keep accurate records and try to prevent letting employees go without cause. A way you can do this is by keeping meticulous records, including payroll records and all information regarding employees’ performance, behavior, and any misconduct that may lead to firing.
Reducing employee turnover and unemployment claims will help keep your SUI tax rate where it’s at and prevent it from rising more than necessary. Remember, workers who were fired for misconduct are not eligible to receive unemployment benefits, only those who are terminated by no fault of their own.
How often do companies pay SUI? Employers typically need to pay state unemployment insurance taxes quarterly as a part of their payroll taxes; however, depending on the state your business is in, you may need to make SUI payments more frequently. To ensure SUI tax compliance, employers should make sure they’re paying on time, as late payments can result in penalties and fines.
What if a company neglects to pay SUI taxes? Depending on the severity of the case, failure to pay SUI taxes can be classified as a felony. In addition, not paying SUI taxes can result in fines up to $10,000, result in your business losing access to unemployment insurance benefits, and potentially include jail time.
Remember to pay your SUI taxes on time and check your state’s regulations for when SUI taxes are due to ensure SUI tax compliance and to avoid the penalties of paying for filing late.
To conclude, the state unemployment insurance tax is a mandatory tax that all employers across the United States must pay. This tax funds a program to provide financial assistance for workers who have filed for unemployment as a result of losing their job through no fault of their own. It’s incredibly important for employers to stay on top of state unemployment insurance tax rates to ensure they are accurately paying and withholding SUI taxes from employees' wages.
When navigating and calculating a company’s SUI tax rate, factors such as state-specific SUI tax rates, wage bases, experience, and employee turnover history are all factors that can affect and determine a company’s SUI tax rate.
While navigating these factors can be complex, SUI tax compliance is an essential aspect of payroll management. Adhering to SUI tax requirements is essential for businesses to support their employees and avoid legal repercussions. Staying up-to-date and informed while managing SUI tax rates is crucial for minimizing costs and ensuring compliance with state regulations.
If you have questions or concerns about accurately calculating your company’s specific SUI tax rate, reach out to Complete Payroll and talk with a payroll professional to help guide you and determine your exact SUI tax calculation to ensure compliance!