plura Financial Blog

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What is SUI Tax?

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-James Timberview/pluraFinancial.com

SUI tax stands for State Unemployment Insurance tax.   This seemingly minor line item in your company’s payroll taxes can add up quickly, so pay close attention to it.  Like so many other government tax rates, the SUI rate is difficult to understand/calculate.  But we’ll try to explain this vastly over-engineered calculation in a way that’s (hopefully) a bit easier to understand.

At the simplest level, the SUI tax rate goes up (or down) over time as your unemployment claims go up (or down), but with a % limit, in order to help the government pay unemployment insurance to folks that have been laid off.  New businesses get a fixed SUI tax rate, usually 4.35%, because new businesses have no prior track record of unemployment claims.  The SUI for existing businesses can change each year depending on how many unemployment insurance claims your employees have filed over the past few years.

According to the Illinois Department of Unemployment Security, most new businesses will pay a fixed SUI tax rate of 4.35% (of total payroll).  That’s a staggering amount of money for any business with meaningful payroll.  Certain industries that have relatively high propensity to lay people off (e.g. construction) have an even higher SUI tax rate (e.g. 5.25%).

If you’ve had any employees file for unemployment in the last few years, your SUI is subject to change each year (“variable”) and according to the IDES is based on the following calculation:

[(Benefit Ratio * State Experience Factor) + Fund Building Rate] = SUI tax rate

This can be loosely translated to mean “[(The percent of your workforce the state expects to file for unemployment * a cushion to help bridge the gap between how much unemployment insurance the State collects versus pays out) + some extra cushion to make the unemployment fund even bigger].”

Benefit Ratio = [(Your company’s prior year(s) Unemployment Insurance claims * The State’s Benefit Conversion Factor)/Last year’s payroll for your business].  This basically shows how much unemployment insurance your ex-employees have received relative to each $1 of the company’s total payroll. The Benefit Conversion Factor is number set by the State to adjust for the impact of negating certain tax changes.

State Experience Factor = (The amount of global SUI tax the State collected last year / The amount of unemployment insurance it paid out).  For example, if it collected $100MM of SUI and paid out $70MM of unemployment insurance, the State Experience Factor would be 142%.  There are some adjustments done to this number to net out credits & reserve requirements but for these purposes we’ll spare you that excessive brain damage.

Fund Building Rate = The extra cushion the State needs to ensure the UI fund is “solvent”.

The minimum SUI tax rate in Illinois, for example, is 0.55% = [(0*139%) + 0.55%].

The maximum rate is 9.45%.  [This is the current cap, regardless of what the Benefit Ratio is]

A few examples as provided by the IDES:

1)      Benefit Ratio of 0.031% * 139% State Experience Factor = 0.0431%, which rounds to 0.0%.  0.0% + the 0.55% Fund Building Rate = 0.55% SUI tax rate.

2)      Benefit Ratio of 1.5299% * 139% State Experience Factor = 2.1266%, which rounds to 2.1%; 2.1% + the 0.55% Fund Building Rate = 2.65% SUI tax rate.

3)      Benefit Ratio of 8.0612% * 139% = 11.2051%, which rounds to 11.2%.  Although adding the 0.55% would yield 11.75%, there is a 9.45% cap thus the SUI tax rate would be 9.45%.

The SUI tax calculation is not a fun exercise; but, as anyone with a large payroll knows, it’s an impactful number that’s important for you to understand.


Disclaimer – we’re not SUI or tax experts.  We’re not even CPAs.  We’ve just experienced the burden of the SUI tax and are trying to explain our understanding of how it works for folks new to the issue.  For detailed explanations, talk to your CPA, visit www.ides.illinois.gov, or for a good time call your local Department of Employment Security. 

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Written by entrabanker

April 11, 2012 at 3:47 am

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