SUI and SDI deductions come out of what type of income? I live and worked in New Jersey and I retired in 2006 and finally received my severance pay this year. Severance pay consisted of 2 weeks pay for every year of employment. I have been collecting a pension for 6 months. Was my former employer's financial officer correct to deduct 2007SUI/SDI from that lump sum payment that had no reflection as "earned income"? I am now paid up in NJ's SUI/SDI maximum and can't even collect under those deductions because I am retired.

CA is another state that has the Unemployment and Disability taxes, and I can tell you from personal experience that they do come out of Severance Pay, regardless of whether you are eligible to use them or not.

They are collected for the state to help all workers who may need the benefit.