In the face of Federal and State Unemployment Insurance tax rate changes for 2024, HR professionals need to grasp how unemployment claims impact your company's financial bottom line. Staying informed of tax rate changes is pivotal for proactive compliance and budgeting to navigate the evolving landscape effectively.

To guide you through the 2024 changes, we'll explain the variations in federal and state unemployment insurance taxes and show you how the tax rates will be different in the coming year.

What Is the Difference Between FUTA and SUI?

FUTA (Federal Unemployment Tax Act): FUTA is a federal law that establishes the framework for the unemployment insurance system in the United States. Under FUTA, employers are required to pay a tax to fund unemployment benefits for workers who lose their jobs. This tax is solely paid by the employer and is not deducted from employees' wages.

The FUTA tax rate is 6.0%. The tax applies to the first $7,000 you paid to each employee as wages during the year. The $7,000 is often referred to as the federal or FUTA wage base. Your state wage base may be different based on the respective state’s rules.

If you paid wages subject to state unemployment tax, you may receive a credit of up to 5.4% of FUTA taxable wages when you file your Form 940. If you're entitled to the maximum 5.4% credit, the net FUTA tax rate after the credit is 0.6%. 

You're entitled to the maximum credit if you paid your state unemployment taxes in full, by the due date of Form 940, and the state isn't determined to be a credit reduction state. 

SUI (State Unemployment Insurance): SUI, on the other hand, refers to State Unemployment Insurance. Each state administers its own unemployment insurance program, and employers in each state are required to contribute to this fund. The SUI tax is meant to provide unemployment benefits to workers who become unemployed and meet the eligibility criteria set by the state.

HR’s Involvement in Managing Unemployment Insurance Tax Compliance

Understanding FUTA and SUI tax rates is essential for HR professionals managing unemployment insurance costs. Compliance with FUTA and SUI is crucial, directly impacting a business's financial health. A lower tax rate reduces payroll costs and can directly impact your company’s hiring decisions. 

“The federal unemployment tax rate for employers has become a moving target,” says HRlogics UCM’s Chief Operating Officer, Josh Kendall. “This makes budgeting for this expense more difficult. Your FUTA tax payments for 2023 are not a good predictor of your 2024 liability, which could be higher for most multi-state companies.” 

By staying informed about rate changes, your team can budget effectively and better plan labor costs.

Accurate record-keeping and timely filing, along with knowledge of state-specific rules, are vital. HR professionals must communicate changes to employees, as unemployment benefits are integral to employee relations. Awareness of SUI rates helps employees grasp the overall employment cost structure.

Not only are HR professionals responsible for managing compliance and communication, but they are also responsible for managing audits and appeals. In case of disputes or audits related to unemployment claims, HR professionals need to thoroughly understand the UI tax rate and related regulations to effectively navigate the appeals process.

Now that you have a thorough understanding of the difference between FUTA and SUI and how it impacts your role as an HR professional, we’ll turn to the recent changes impacting states this year. 

2023 FUTA Tax Credit Changes

The FUTA landscape is set to shift, as per recent announcements from the U.S. Department of Labor regarding changes in FUTA rates for specific jurisdictions. Notably, California, New York, and the Virgin Islands, having maintained outstanding Title XII advances for at least two consecutive years, will experience a FUTA credit reduction. 

This translates to an increase in the net FUTA tax rate from 0.90% in 2022 to 1.20% for California and New York, and from 4.20% in 2022 to 4.50% for the Virgin Islands in 2023. 

Title XII advances are essentially loans provided by the federal government to states in order to assist them in funding their unemployment insurance programs. These advances become crucial when a state's unemployment trust fund lacks sufficient funds to cover the costs of unemployment benefits during economic downturns or high unemployment periods.

Fortunately for Connecticut and Illinois, having successfully repaid all outstanding Title XII advances prior to November 10, 2023, will avoid a FUTA credit reduction for 2023, saving employers in those states $42 per employee for calendar year 2023.

The Virgin Islands will see a 0.30% increase but has received a waiver of the benefit-cost ratio (BCR) rate for 2023, as in previous years. These adjustments necessitate careful consideration for budgeting and compliance purposes, emphasizing the importance of staying abreast of these changes for effective financial planning and adherence to regulatory requirements.

In the face of imminent changes to Federal Unemployment Tax Act (FUTA) rates, employers in California, New York, and the Virgin Islands should proactively address these changes in their financial planning strategies. 

Partner with HRlogics UCM for a Strategic Approach to Unemployment Cost Management

Did you know that the unemployment insurance tax for employers is the only controllable tax rate employers can influence? UI tax rates undergo annual adjustments, factoring in updated information from employers’ benefit charges, payroll, and relevant data directly influenced by the employer's own decisions about their workforce. While employers can’t control industry changes, they do have control over employment practices that influence their UI tax rate.

Let HRlogics UCM take on the administrative burden of managing unemployment insurance claims. Whether you are looking for full-service unemployment claims management — offering a hands-on approach with expert guidance — or looking for self-service software for in-house efficiency, employers gain a reliable partner in the unemployment process.