Unemployment insurance taxes are a payroll tax that employers pay to fund unemployment benefits. These taxes are a way for businesses to help their employees recover from periods of unemployment and ensure that they have access to unemployment benefits when they need them most.
The State Unemployment Insurance (SUI) tax is the state-mandated payroll tax employers pay to fund unemployment insurance benefits, which pay unemployment compensation benefits to workers who have lost their jobs through no fault of their own.
Determining the amount of State Unemployment Insurance tax due on employees’ wages is one of the most important aspects of payroll tax compliance. This tax, which is deducted from an employee’s wages, is meant to fund unemployment benefits in the state when an employee loses his or her job through no fault. In most states, this tax is automatically deducted from an employee’s paycheck and is typically collected by the employer. In a few states, however, the SUI is collected by the state itself.
State Unemployment Insurance tax is referred by a few different names like:
- State Unemployment Tax Act (SUTA) tax
- Reemployment tax
- Unemployment benefit tax
Which Company Is Required To Pay SUI Tax?
Companies with employees have a legal responsibility to pay a portion of their employees’ wages into a fund that covers their financial losses if they become unemployed. The SUI is a highly controversial tax levied by the state and a source of much controversy. However, many employers have been skeptical of the SUI’s effectiveness in stimulating the economy, and have fought it because it may have a negative impact on their businesses. The FUTA (Federal Unemployment Tax Act) requires SUI taxes for every state where the company has workers.
In most states, workers are not accountable for funding SUI. That is why the contributions typically are not withheld from worker wages. Nevertheless, there are a few exceptions where workers are liable for making SUI contributions. The exceptions are:
- Alaska
- Pennsylvania
- New Jersey
What is the Difference Between FUTA and SUTA?
Both the State Unemployment Insurance (SUI) and Federal unemployment tax (FUTA) systems levy a payroll tax on the wages paid by employers. The difference between the two lies in how the funds collected by these taxes are used.
FUTA is what pays social security taxes for the unemployed, while SUTA is what pays social security taxes for employees. FUTA is a tax on employers, while SUTA is a tax on employees. The principal difference between these two taxes is that FUTA can be used to cover the money states need to pay benefits, while SUTA can only be used for paying benefits.
Final Words
The SUI is a tax that all employers pay to support state unemployment insurance systems. It is important to realize that the SUI tax is not a penalty. It’s a tool designed to ensure a stable funding source for a program that is a benefit to workers and a benefit to employers. Attend the Compliance Prime webinar to learn more about State Unemployment Insurance (SUI) tax.
