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October 2007 — Vol. 85, No. 8

How unemployment comp taxes
are computed

 

FUTA, the federal unemployment tax, is levied on the first $7,000 of each employee’s salary per year, says Paul A. O’Connell, C.P.A., tax manager for West Hartford–based Blum Shapiro. The tax payment and Form 940 or 940EZ is due each Jan. 31. Employers, though, must make quarterly deposits unless the tax amount is under $500, he says.

Employers may take a credit against their FUTA tax for amounts they paid into their state unemployment funds, up to a maximum of 5.4% of federal taxable wages. For employers entitled to the maximum 5.4% credit, the current FUTA tax rate after the credit is 0.8%.

Connecticut’s unemployment tax — actually called a “contribution” — is levied on the first $15,000 of each employee’s annual salary. The contribution rate is a combination of two rates: (1) a “fund tax rate,” set annually by the labor commissioner, that ensures the solvency of the fund from which claimants’ benefits are paid, and (2) a “charged rate” representing the ratio between the amount of unemployment benefits an employer has been charged with and the employer’s taxable payroll over the previous three years.

 

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