What Is SUI/SDI Tax and Who Is Responsible for Paying It?
Demystify SUI/SDI taxes. Learn what these state-mandated contributions are, their purpose, and the responsibilities of employers and employees.
State Unemployment Insurance (SUI) and State Disability Insurance (SDI) offer financial support during specific life events. These state-level taxes provide temporary wage replacement benefits for eligible workers who experience job loss through no fault of their own or are unable to work due to non-work-related illness, injury, or family leave. Regulations, contribution rates, and benefit structures for SUI and SDI vary significantly by state. Understanding these programs is important for employers and employees.
State Unemployment Insurance (SUI) Explained
State Unemployment Insurance (SUI) provides temporary financial benefits to individuals unemployed through no fault of their own. This assistance helps bridge the gap while they actively seek new employment. The SUI program is primarily funded by a tax imposed on employers, though a few states, such as Alaska, New Jersey, and Pennsylvania, also require minimal employee contributions.
Employer SUI tax rates are determined by an “experience rating” system. This system assesses an employer’s history of unemployment claims filed by former employees; businesses with more former employees receiving benefits generally face higher SUI tax rates. New employers often start with a standard state-determined rate for a few years before their own experience rating is established. These rates can range from very low percentages to over 10% in some states.
SUI taxes are applied to a specific portion of an employee’s wages, known as the taxable wage base. This wage base represents the maximum amount of an employee’s earnings subject to SUI taxes in a given year. For instance, if a state’s wage base is $10,000 and an employee earns $40,000, the employer only pays SUI taxes on the initial $10,000 of wages. The taxable wage base is subject to annual adjustments.
State Disability Insurance (SDI) Explained
State Disability Insurance (SDI) programs offer partial wage replacement to eligible workers unable to perform their customary work due to a non-work-related illness, injury, or for family leave purposes. This includes conditions like debilitating illnesses, recovery from surgery, childbirth, or caring for a seriously ill family member. SDI is distinct from workers’ compensation, which covers work-related injuries or illnesses.
Funding for SDI programs varies by state; some are primarily funded through employee payroll deductions, while others involve employer contributions or a combination. For example, employees in some states contribute a small percentage of their wages, often appearing as “CASDI” on pay stubs. Only a limited number of states currently have mandatory SDI programs, including California, Hawaii, New Jersey, New York, and Rhode Island. Puerto Rico also has a state-sponsored short-term disability program.
Eligibility for SDI benefits requires a worker to be unable to perform regular duties for a specified period, have lost wages due to disability, and have earned a minimum amount of wages subject to SDI deductions during a defined “base period.” Applicants need to be under the care of a licensed healthcare professional who certifies their disability. Benefits provide a percentage of the worker’s average weekly wages, often 60% to 70%, up to a state-determined maximum weekly amount. Benefit duration is short-term, typically 6 to 12 months, depending on the state.
Employer and Employee Obligations
Employers have specific responsibilities regarding SUI and SDI taxes. Businesses must register with their state unemployment agencies to obtain a SUI tax account number. Employers are obligated to accurately calculate and pay SUI taxes based on their assigned rate and the state’s taxable wage base.
For SDI, if applicable, employers are responsible for withholding employee contributions from wages through payroll deductions. These deductions must be computed according to state-specific rates and remitted to the relevant state agency. Employers are also responsible for maintaining accurate payroll records of all SUI and SDI contributions and deductions. This record-keeping is important for compliance.
Employees will observe SUI and SDI contributions as deductions on their pay stubs, often labeled with abbreviations like “CASDI.” These payroll deductions fund programs providing financial assistance for unemployment or qualifying disability. Employees must follow state-specific application procedures to claim benefits. This involves filing a claim with the state unemployment or disability agency, often online, and providing necessary documentation like medical certifications for SDI claims. Specific waiting periods, required forms, and submission deadlines for benefit applications are dictated by each state’s regulations.