What Are SUI Taxes?

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SUI stands for state unemployment insurance. SUI taxes help pay for the jobless benefits available to workers who have been laid off. Employers in every state must pay both federal and state unemployment taxes; the federal tax rate is the same for everyone, but SUI tax rates vary among states, as well as among employers within each state.

Program

The Federal-State Unemployment Insurance Program operates under federal guidelines, but specific details about who is eligible for benefits and how much workers can get are determined by individual states. The program gets its funding from both federal and state payroll taxes. The federal taxes are called FUTA, after the Federal Unemployment Tax Act, and the state taxes usually go by the abbreviation SUI. Only employers pay FUTA taxes, and in most states, only employers pay SUI taxes. However, Alaska, New Jersey and Pennsylvania require employees to contribute to the SUI fund.

Tax Rates

Unlike FUTA, which charges a uniform rate for all employers, SUI tax rates are all over the map. States set their rates based on such things as how many people in a state are typically eligible for benefits, and how generous the state's benefits are. Each state also sets a range of rates, and an individual employer's rate within that range depends on how frequently its former employees claim benefits. If a company hardly ever lays people off, its rate will be lower; if it lays off people all the time, its rate will be higher. In Alabama, for example, the rates in 2010 ranged from 0.59 percent to 6.74 percent. In Wyoming, meanwhile, the rates ranged from 0.56 percent to 10 percent.

Tax Base

The dollar amount of SUI taxes depends on both the tax rate and the tax base. The tax base is the portion of each employee's pay that the rate applies to. In Alabama in 2010, for example, SUI taxes applied to the first $8,000 of every worker's wages; in Wyoming, it was the first $22,000 of each worker's wages. That means an employer with an SUI rate of 3 percent would have paid a maximum of $240 per worker in Alabama and $660 in Wyoming.

Federal Credit

The federal government allows employers to reduce their FUTA taxes to make up for some of their SUI taxes. In 2010, the FUTA rate was 6.2 percent; so, applied to $7,000 worth of wages, the maximum FUTA tax was $434 per worker. Employers could reduce that by the amount of their SUI payments, up to a maximum of 5.4 percent of each worker's wages, or $378. The Alabama employer mentioned previously would have a maximum FUTA of $194 per worker, or $434 minus $240; the Wyoming employer would have a maximum FUTA of $56 per worker, or $434 minus the full $378 credit.

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