Is SUTA the Same as SUI? A Look at Unemployment Taxes

State Unemployment Tax Act (SUTA) and State Unemployment Insurance (SUI) are terms used interchangeably to refer to the same state payroll tax. This tax is a mandatory contribution primarily made by employers to fund unemployment benefits for eligible workers who lose their jobs through no fault of their own.

Understanding State Unemployment Taxes

SUTA and SUI designate a state-based payroll tax that finances unemployment benefits and related programs for individuals who are out of work. The purpose of this tax is to establish a financial safety net, providing temporary financial assistance to those actively seeking new employment. Some states may use other terms, such as “contribution tax” or “reemployment tax,” for this same tax.

How the Unemployment Insurance System Works

Funds collected through SUTA/SUI are deposited into state-specific unemployment trust funds. These funds are used to provide weekly payments to eligible individuals who have become unemployed. While employers are the primary contributors, a few states, including Alaska, New Jersey, and Pennsylvania, also require employees to contribute a portion of these taxes. To qualify for benefits, an individual must be unemployed through no fault of their own and meet state-specific eligibility criteria.

Key Differences and State Specifics

The unemployment insurance system operates as a joint federal-state program, involving both state-level SUTA/SUI and the federal Federal Unemployment Tax Act (FUTA). SUTA/SUI taxes are collected by state governments to fund state unemployment benefits, while FUTA is a federal tax used for administrative costs and to provide loans to states if their funds are depleted. Unlike FUTA, which has a consistent federal rate and a $7,000 wage base, SUTA/SUI rates and rules vary significantly by state. These state variations depend on factors such as an employer’s “experience rating,” which reflects their history of unemployment claims, and the state’s specific taxable wage base.

Employer Obligations

Employers are required to register with the appropriate state unemployment agency to obtain an account and their assigned tax rate. They must accurately report employee wages and make quarterly tax payments to the state. The SUTA/SUI tax is calculated by multiplying the employer’s assigned tax rate by the employee’s taxable wages, up to the state’s specific wage base limit. Employers receive an annual notice detailing their SUI tax rate and should review it for accuracy, as it impacts payroll expenses.