State Unemployment Insurance (SUI): Rates and Experience
How states set your rate, why layoffs raise it, the wage bases, and the states with disability insurance (SDI) alongside
Reviewed by the Fairlight Accounting cross-border tax team — U.S. & Canadian Tax Desks
State unemployment insurance (SUI, also called SUTA) is the mostly employer-paid state tax that funds unemployment benefits for laid-off workers. Each employer pays a state-set rate, adjusted for its layoff history, on each employee's wages up to the state's wage base, reported quarterly. Paying it on time also earns the 5.4 percent FUTA credit.
On this page
How is the SUI rate set?
| Element | How it works |
|---|---|
| New-employer rate | A fixed rate for the first two to three years (commonly 2–4 percent, higher for construction in many states), until the employer has enough history to be experience-rated |
| Experience rating | The state computes the employer's rate from benefits paid to its former employees relative to its taxable payroll over a lookback period (reserve-ratio or benefit-ratio methods vary by state); more claims charged to the account → higher rate, within the state's minimum and maximum (roughly 0.1 to 10-plus percent) |
| Wage base | The annual amount of each employee's wages subject to the tax — from US$7,000 in a few states to over US$50,000 in others, often indexed |
| Annual rate notice | The state issues each employer its rate for the coming year, usually in November or December; the employer (or its payroll provider) must update payroll to the new rate on January 1 |
| Surcharges and solvency adjustments | Many states add a fund-solvency surcharge or a job-training assessment on top of the experience rate |
Because the rate follows the employer's own claims, layoffs are not free: each former employee who collects benefits is charged to the employer's account and raises the next years' rate. A seasonal employer that lays off its crew every November carries a higher SUI rate than one with year-round staff — the cost the landscaping and painting guides on this site price into the seasonal model. Contesting unwarranted claims (an employee who quit voluntarily or was fired for misconduct) protects the rate.
What is reported and when?
Quarterly wage reports listing each employee's wages, with payment of the tax on wages up to the wage base, due by the end of the month following the quarter (April 30, July 31, October 31, January 31 in most states). Employers register with the state's workforce or labor agency before the first payroll; the state assigns an account number and the new-employer rate. Multi-state employers report each employee to one state under the uniform "localization" tests (where the work is performed, then base of operations, then place of direction, then residence). The quarterly SUI wage report also feeds the state's new-hire and wage-verification systems.
What is SDI?
A handful of jurisdictions — California, Hawaii, New Jersey, New York, Rhode Island, and Puerto Rico, joined by the growing group of states with paid family and medical leave programs — require a disability insurance contribution, usually withheld from the employee's wages (some states also assess the employer). It funds short-term disability and family leave benefits for non-work-related conditions (workers' compensation covers work-related ones). It is a separate line on the paystub and the state return, with its own wage base and rate set annually — and who pays varies: California and Rhode Island fund it from employee withholding, while Hawaii, New Jersey, and New York add employer obligations.
How does SUI relate to FUTA and to workers' compensation?
FUTA (the Form 940 guide) is the federal counterpart: 6 percent on the first US$7,000, reduced to 0.6 percent by a credit that depends on paying state SUI on time — late SUI payments cost part of the FUTA credit, and SUI paid to a state with an outstanding federal loan is subject to a credit reduction. Workers' compensation (the workers' comp guide) is different again: insurance for on-the-job injuries, bought from a carrier or state fund, rated by occupational class rather than by layoffs. A small employer's full payroll-tax stack is federal income tax withholding, Social Security and Medicare (employee and employer), FUTA, SUI, any SDI or paid-leave contribution, and workers' compensation — the cost table in the W-2 vs 1099 guide.
What raises or lowers the bill?
Raises it: layoffs and separations that result in paid claims; failing to respond to claim notices (the state pays the claim and charges the account); misclassifying employees as contractors (the audit assesses back tax plus penalties and interest, and the workers' claims still land on the account); operating in a state with a high wage base or a solvency surcharge. Lowers it: a stable workforce; contesting invalid claims; voluntary contributions in states that allow an employer to buy down its rate before the rate year (worth computing each fall); and — in some states — a favorable rate transfer when acquiring a business with a good history (while "SUTA dumping," acquiring a shell for its low rate, is illegal everywhere).
Worked example
A pressure-washing company in a state with a US$9,000 wage base hires its first two employees in March. New-employer rate: 2.7 percent. Year one SUI: 2 × US$9,000 × 2.7% = US$486, reported and paid quarterly, and its on-time payment earns the full 5.4 percent FUTA credit (net FUTA US$84 for the two). The company lays both off in November; both collect benefits for the winter, charged to the account. By year four the company is experience-rated at 5.1 percent on six employees — US$2,754 a year — and its owner starts contesting the claim of a worker who quit in July to take another job (an ineligible separation in many states, or one not charged to the employer) and considers a year-round contract to hold the crew through winter. Its competitor, who paid the same crew as "contractors," is audited after one of them files a claim: three years of back SUI at the new-employer rate plus penalties, and the FUTA credit for those years partly lost because the state tax was paid late.
Frequently asked questions
What is SUI tax?
State unemployment insurance tax — a mostly employer-paid state tax (employees also contribute in Alaska, New Jersey, and Pennsylvania) on each employee's wages up to the state's wage base, at a rate set by the state and adjusted for the employer's layoff history, funding unemployment benefits.
How is my SUI rate determined?
New employers pay a fixed rate for their first years; after that, the state experience-rates the employer on benefits charged to its account relative to its taxable payroll, within the state's minimum and maximum, with any surcharges added.
What is SDI?
State disability insurance — a contribution (usually employee-paid) in California, Hawaii, New Jersey, New York, Rhode Island, and the states with paid family and medical leave programs, funding short-term disability and family leave benefits for non-work-related conditions.
Do I pay SUI in every state where I have employees?
Each employee's wages are reported to one state under the localization tests (where the work is performed, then base of operations, direction, and residence). An employer with employees working in several states registers and pays in each of those states for the employees based there.
Official sources
The IRS states: “Most employers pay both a federal and a state unemployment tax. Only employers pay FUTA tax. Do not collect or deduct FUTA tax from your employees' wages.” — Internal Revenue Service, About Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return, https://www.irs.gov/forms-pubs/about-form-940
The IRS describes employment taxes as “the various types of employment taxes you need to deposit and report as an employer, such as federal income tax, Social Security and Medicare taxes and federal unemployment tax.” — Internal Revenue Service, Employment taxes, https://www.irs.gov/businesses/small-businesses-self-employed/employment-taxes
Next step
Fairlight Accounting is a cross-border accounting and tax practice with a U.S. Tax Desk and a Canadian Tax Desk. Our U.S. Tax Desk handles state payroll registrations and quarterly SUI reporting, rate-notice review and voluntary-contribution analysis, claim contests, and multi-state employee localization. See pricing or book a call.
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