You tried to avoid it as best you could, but you need to lay off some of your employees to keep your business afloat. You feel awful, and it’s important to you that your employees are able to keep food on the table for themselves and their families until they find other work.
Think you need to dig into your own pockets? You don’t. This is where the SUI tax comes in.
What Is SUI Tax?
State Unemployment Insurance tax (also known as SUI tax) is part of the payroll taxes that employers pay. This specific portion of payroll taxes goes to a state unemployment fund that covers short-term benefits to employees who have lost their jobs.
You’ve likely heard of former employees or other people filing for unemployment or submitting unemployment claims. The wage replacement they get through unemployment benefits is actually funded by employers through this SUI tax.
It’s important to note that not every employee will be eligible for this benefit, as it’s meant to provide for people who have lost their jobs through no fault of their own (such as those who were laid off during the COVID-19 pandemic) and are actively looking for more work. Those who voluntarily quit their jobs or were fired for misconduct are ineligible.
Is SUI and SUTA The Same?
Yes, they’re exactly the same! Because the SUI tax is established in each state (alongside the federal unemployment tax, which we’ll discuss next), some states have different names for it.
With that in mind, you might also hear this tax referred to as:
- State Unemployment Tax Act (SUTA)
- Unemployment benefit tax
- Reemployment tax
But, rest assured, they’re all referring to the exact same thing.
What’s the Difference Between SUTA and FUTA?
As you learn more about the SUI tax, there’s another acronym that you’ll come across: FUTA.
This stands for the Federal Unemployment Tax Act. Unemployment programs are funded at the federal and state level, and FUTA is how federal contributions are paid.
Generally, SUTA is used to actually pay out unemployment benefits to employees while FUTA is used to cover the administration costs of those programs. But FUTA can also be used to cover benefits when states need to draw on that money.
What is the FUTA tax rate? The IRS states that it’s 6%, which applies to the first $7,000 paid to each employee during a calendar year (something known as a federal or FUTA wage base).
However, you might not need to pay the full 6%. Employers who pay state unemployment taxes in full, on time, and aren’t in a credit reduction state can file Form 940 and get a credit up to 5.4% of FUTA taxable wages. That brings their FUTA tax rate all the way down to 0.6%, saving them some payroll taxes.
You probably have one more question: What is a credit reduction state? The IRS says, “A state is a credit reduction state if it has taken loans from the federal government to meet its state unemployment benefits liabilities and has not repaid the loans within the allowable time frame.”
What are The SUI Tax Rates?
Each state has different unemployment insurance tax rates and wage base rates. These rates can depend on a number of factors including the industry, the number of employees claiming the benefit, and experience of the employer (there’s something called a new employer rate, which typically applies for an employer's first two or three years that they’re paying wages to employees).
There’s a lot of variance in tax rates and base wages. Tax rates can fall between 0.01% and 20.6%, while wage base rates range from $7,000 to $56,500.
To understand your state’s SUI tax rate and wage base for the current year, check with your state’s Department of Workforce Development.
How Do You Calculate SUI?
SUI tax is fairly simple to calculate—you simply need to understand your state’s wage base (also known as a taxable wage base) and tax rate. The wage base is the amount you need to pay up to, and the tax rate is the percentage you pay on that amount.
So, let’s say you live in Florida, where the taxable wage base is $7,000. SUI tax is only due on that amount for that employee. Any income above that wage base is exempt. The maximum SUI tax rate in Florida is 5.4%. So, using that maximum rate, you’d need to pay $378 in SUI tax for that employee for the year.
Don’t worry—you need to register with your state and get an identification number or account number in order to pay SUI tax, and they’ll tell you what your contribution rate is.
SUI taxes are typically paid quarterly by the employer. However, some states deduct SUI tax from employee wages. These states are:
- Alaska
- New Jersey
- Pennsylvania
Is SUI Tax Required?
Here’s the short answer: yes. Federal and state laws mandate that this tax is required for employers. But as with anything, there’s some criteria and some loopholes.
Typically, as the United States Department of Labor (DOL) explains, employers need to pay both federal and state unemployment taxes if:
1. They pay wages to employees totaling $1,500 or more in any quarter of the calendar year.
OR
2. They had at least one employee during any day of the week during 20 weeks in a calendar year, regardless of whether or not the weeks were consecutive.
SUI taxes typically aren’t withheld from employees wages, but that can differ from state to state. As mentioned in the previous section, Alaska, New Jersey, and Pennsylvania withhold SUI tax from employee paychecks.
Who Pays SUI Tax in California?
Employers need to pay state and federal unemployment taxes if any employees of their business work in California.
They need to register to pay these taxes if they pay more than $100 in wages in a calendar quarter, which is significantly lower than the federal level under FUTA (which is $7,000 for the year).
California has several other rules to be aware of, including:
- An employment training tax (ETT), which is typically included with SUI tax
- Different rules for agricultural workers, domestic workers, and some non-profit employees
You Need to Pay SUI Tax, So It’s Important to Understand It
In an ideal world, you’d never have to worry about your employees being out of work. But, things happen and that’s exactly why the SUI tax exists. This tax funds programs that give employees wage replacement benefits when they’ve lost their jobs through no fault of their own.
It’s an important tax, but it can also feel overwhelming and complex. Use this as your guide to understand the basics of SUI tax and take comfort in the fact that your employees have access to these benefits in the event of a rainy day.
1. Introducing Yourself
Your introductory email needs to pack a lot of information into a small package. Try something like this:
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Hello Jane,
My name is John Doe and I work for ABC Agency, where we provide business insurance policies to many of Dallas' rockstar small businesses.
Congratulations on your new business, Jane's Bakery. Are you wondering if you have all the insurance you need? Or if your policies will really cover you in a pinch?
At ABC Agency, we pride ourselves on providing robust, comprehensive coverage options to companies like yours with flexible, pay-as-you-go plans.
Are you available this week to talk more about how we can help? I can help you find the most affordable rates and the best policies out there.
I look forward to speaking with you soon.
Cheers,
John Doe
2. Presenting a Quote
Once you've met with your potential client, a quick reply with their quote will get the ball rolling.
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Hi Jane,
Thanks so much for meeting with me this morning. I loved touring Jane's Bakery–I can still smell those delicious chocolate chip cookies baking! You have a great location, and I'm sure you're going to do great on Front St.
After reviewing my notes, I've pulled together an insurance quote for you (attached). I recommend a business owner's policy. A BOP includes several insurance products in one: liability, property insurance, and business interruption insurance. It offers robust coverage at a competitive price.
I'll call you in a few days to see what you think about this insurance plan. In the meantime, if you have any questions, don't hesitate to email me or call me at [phone number].
Again, thank you for your time today. I look forward to working with you in the future.
Cheers,
John Doe
3. Thanks for Purchasing a Policy
Gratitude is important! It's never a bad idea to thank your clients for their business.
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Hi Jane,
Thank you for choosing a business owner's policy with ABC Agency. We know it's so important to get the right coverage for your business, and we are honoured you've placed your trust in us.
We're excited to work closely with you, and our no. 1 goal is to make sure you're business is always protected.
Do you have any questions? We are here to help. Reach out whenever something comes to mind.
Thank you again for choosing ABC Agency to insure Jane's Bakery.
Cheers,
John Doe
4. Welcome Email
A welcome email helps clients feel like you're there to help–and can softly pitch other insurance products you offer.
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Dear Jane,
Welcome to the ABC family! We are thrilled to have you as a new customer and can't wait to meet all of your insurance needs.
As an independent insurance agency, we work with multiple insurance providers to find the best coverage options for all our customers. If you need any other type of insurance–like [include additional offerings unique to your agency, like life insurance, health insurance, home insurance or anything else]–we can help you too.
Do you want to discuss any of these policies?
Cheers,
John Doe
5. Introducing a New Product
A happy client may want to expand their business with you.
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Hello Jane,
I hope all is well with you and Jane's Bakery. I stopped in yesterday for a blueberry muffin and coffee, and they were delicious. I loved the hint of cinnamon in the muffin! Was that your idea?
I wanted you to be the first to know we are now offering commercial vehicle insurance to our policyholders. Auto insurance for your catering vans is super important since your personal car insurance won't cover them.
We're offering this insurance coverage solely to our current business clients at the moment and have some very competitive rates.
Would you like me to work up a quote for you?
As always, thanks so much for being a part of the ABC family.
Cheers,
John Doe
6. Asking For Referrals
Once your relationship is established and comfortable, let your clients help you grow.
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Hi Jane,
You've been a valuable member of the ABC family for two years now, and we so appreciate your business–not to mention the muffins you supply for our monthly meetings!
Because you are a valued policyholder, I wanted to ask a quick favour. I know you are active in the local Chamber of Commerce, and I'm hoping you might know some colleagues who would benefit from working with our insurance company.
Referrals are one of the most effective ways to connect with our community since people really trust their friends, family and colleagues. Is there anyone you'd recommend I speak with?
Remember that in addition to business insurance products, we offer everything from life insurance policies to pet insurance.
As a thank you for your help, we will send you an Amazon gift card of $100 when your referrals buy insurance from us.
Thanks so much for your help!
Cheers,
John Doe
7. Policy Renewal
If your client needs to renew their policy with you, send an email like this:
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Hi Jane,
I hope you're doing well! What a year it's been—from being listed as one of the top 5 bakeries in Dallas to being an official vendor for the city—you have so much to be proud of.
Just a heads up that your business owner's policy is up for renewal soon and will expire on June 15, 2023.
If you're still happy with the coverage, we can easily renew it for you.
Do you have some time to chat this week?
Looking forward to serving you again!
Cheers,
John Doe