Unemployment Insurance Tax

Unemployment insurance benefits help people who have lost their jobs keep food on the table and utilities running while they search for new employment. As an employer, you may need to lay off employees from time to time, but that doesn’t mean your business has to dig into its own pockets to pay for those severance packages. The good news is that there are state unemployment insurance taxes (SUI) to help you offset the cost of those severance payments. In addition to federal taxes, your company is required to pay a separate state unemployment tax. SUI is a specific portion of payroll taxes that goes to the state unemployment insurance fund to help cover short-term wage replacement benefits for workers who have been laid off by their employers. The rate of SUI can vary widely from state to state, but most states require that you file and remit SUI on a quarterly basis If you are a large employer that is subject to the unemployment insurance tax (UI), your rate depends on how much you pay into the fund and on your previous experience with the UI system. Most large employers are subject to an “experience rating” system, which assigns each employer a standard UI tax rate that will remain the same over time based on your previous experience and how other large employers in your industry fared under the system.

FUTA and SUI Tax

Unlike the more commonly known social security tax, which is collected from both the employer and employee, FUTA taxes are paid by only the employer. This makes them more like a business expense than a payroll tax. The FUTA tax is calculated using the wage base and the experience rate. The wage base is established by each state and may vary from year to year. The experience rate is determined by a calculation that takes into account the employer’s history with previous claimants. Newer employers are typically charged a lower rate than experienced ones.

In order to qualify for the FUTA tax deduction, an employer must have had one or more full-time employees for some part of 20 different weeks during 2023 or 2024. The number of employees required to be counted includes all full-time, part-time, and temporary workers. Employers that do not meet the minimum requirements for FUTA tax are subject to a penalty.

Each state’s SUI tax is based on the taxable wage base and the employer contribution rate. The taxable wage base is established by each state and may also vary from year to year. The SUI employer contribution rate is determined by a calculation that takes in the employer’s history with previous claimants. The taxable wage base and SUI employer contribution rates are updated annually. Newer employers are typically charged a higher rate than experienced ones.