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How are state unemployment taxes calculated?

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Quick Answer

State unemployment tax rates vary from state to state. Most states use a payroll tax structure involving three rate types: one for new businesses, a discounted rate for established businesses, and a premium rate, according to the Houston Chronicle. A state's labor department can help calculate the rate.

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Full Answer

New and premium rates are fixed and easy to calculate, but discounted rates depend upon factors unique to each business, reports the Houston Chronicle. States may consider a company's length of time in business, number of employees, tax payments and unemployment claims history when calculating a rate for an established business.

To calculate a state's rate, contact the state labor department, and request a payroll tax information sheet or brochure. Many states provide this information online. Identify the amount of an employee's wages subject to employer payroll taxes. This figure varies widely by state, according to 2014 figures posted by the Tax Policy Center. Alabama taxed the first $7,000 of an employee's wages, while Washington taxed the first $41,300. Multiply the taxable employee income by the tax rate provided by the labor department. For example, an established business in Alabama has a tax rate of 0.65 percent, which multiplied by $7,000 results in $45.50 per employee. That business would pay that amount per employee each year. Alabama's premium rate of 6.8 percent costs employers $476 per employee.

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