How Do You Calculate Unemployment Tax?


Quick Answer

To calculate unemployment compensation tax, first obtain a payroll tax information sheet, then determine the amount of annual income subject to employer payroll taxes. Next, calculate the unemployment compensation taxation rate, and multiply that by the annual income taxable for unemployment in the state. Finally, multiply that by the number of employees, and divide the amount into quarterly payments.

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Full Answer

States rely on employer payroll contributions to fund unemployment compensation. Most states also utilize three types of rates: premium, new business and discounted. Typically, new and premium rates are fixed and simple to calculate, while discounted rates are assigned by the state's department of labor or tax board.

Payroll tax information sheets can be obtained through the state department of labor, tax authorities and unemployment departments. There are specific policies for each state regarding tax rates and employee income subject to tax. Certain states, like New York, put this information online for free. In calculating the unemployment compensation tax rate, the standard or premium rate can be used to arrive at a conservative estimate. Typically, businesses that have been in existence for a while receive a discounted rate based on length of time operating, number of employees and tax payment history.

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