SUI withholding 101
by December 14, 2023
This guest post is brought to you by our friends at MyCorporation. Please note: This blog was originally published in 2019. It’s since been updated for accuracy and comprehensiveness.
“What does the term ‘SUI withholding’ mean, and why does it matter to me?”
If you’re fairly new to entrepreneurship, we’ve got you covered on the ins and outs of SUI withholding and how it’s relevant for small business owners, especially those that run e-commerce businesses.
What does SUI stand for and how does it work?
SUI stands for “state unemployment insurance” which is a program that protects workers who suddenly become involuntarily unemployed. As determined under state law, this type of unemployment is due to no fault of the worker and may include those who left due to health problems, being laid off, or being fired. While the worker looks for a new job in the meantime, SUI provides short-term benefits through the tax.
How do I know if I need it?
Does your e-commerce business have employees or are you planning to hire? If so, you’re required to pay unemployment taxes on their wages in the state. In fact, just about every profitable business must register to pay unemployment insurance with the general rule being that once you pay more than $300 in wages to an employee, you must pay for your state’s unemployment insurance.
What about those self-employed with e-commerce businesses? While you don’t need to buy yourself unemployment insurance, some entrepreneurs like having that kind of safety net provided from the state. If you want to purchase unemployment insurance, form either an LLC or Corporation as your business entity and pay yourself as an employee of the business. Be sure to check with the state you and your business are in before proceeding forward to see what their laws are like concerning this program.
What makes SUI withholding so important to small businesses?
Every quarter, employers are required to submit tax reports even if there were no paid employees during that quarter. For businesses that frequently have unemployment claims filed and associated with their business, their tax rate increases. Furthermore, if you decide to bring unemployment administration in-house, at the bare minimum you will be required to maintain current paperwork and respond to claims on time. If you don’t, your business could be facing some seriously expensive penalties.
Anything else I should know about unemployment insurance or rates?
For unemployment insurance, keep in mind that there’s typically a state maximum wage up to which you pay unemployment insurance. You’ll only need to pay up to that mark. While you’ll still need to report the full amount the employee made, you don’t need to pay any excess wages that go above that ceiling. Also, insurance rates typically change on a yearly basis so make sure you stay on top of those changes. If you need help calculating your rates, check in with the state to see what their process is like as many states do differ on this format.
