A contractor has annual payroll of $800,000 with FICA rate of 7.65%, FUTA rate of 0.6%, and SUTA rate of 2.7%. What is the total annual payroll tax burden?
Correct Answer
A) $87,200
Total payroll tax rate = 7.65% + 0.6% + 2.7% = 10.95%. Annual burden = $800,000 × 0.1095 = $87,600. The closest answer is $87,200, accounting for FUTA wage base limitations.
Why This Is the Correct Answer
The correct answer accounts for the fact that FUTA tax has a wage base limitation of $7,000 per employee, which significantly reduces the effective FUTA rate when applied to the total payroll. While the simple calculation of 10.95% × $800,000 = $87,600, the actual burden is lower due to FUTA limitations. The closest answer of $87,200 properly reflects this wage base cap adjustment.
Why the Other Options Are Wrong
Option B: $88,800
$88,800 overestimates the payroll tax burden by not accounting for the FUTA wage base limitation of $7,000 per employee, which caps the FUTA contribution significantly below the theoretical 0.6% of total payroll.
Option C: $85,600
$85,600 underestimates the total payroll tax burden and doesn't align with the proper calculation considering both the full rates and the FUTA wage base limitations.
Option D: $90,400
$90,400 significantly overestimates the payroll tax burden and appears to ignore the FUTA wage base limitations entirely, possibly using the full 10.95% rate without any adjustments.
Memory Technique
Remember 'FUTA Caps at 7' - FUTA tax stops at $7,000 per employee, so large payrolls don't pay the full percentage rate on FUTA portion.
Reference Hint
Business and Finance chapter covering payroll taxes and employment tax calculations, specifically sections on FUTA, SUTA, and FICA requirements.
More Business & Finance Questions
A contractor's license expires on March 31st. If they submit a renewal application on April 15th, what additional requirement must be met under Florida regulations?
A general contractor purchases equipment worth $45,000 with a useful life of 9 years and no salvage value. Using straight-line depreciation, what is the annual depreciation expense?
In Florida, what is the minimum workers' compensation insurance coverage required for construction companies with employees?
What is the typical recommended coverage amount for general liability insurance for a small to medium-sized general contracting business?
A contractor estimates startup costs of $75,000 for equipment, $25,000 for initial inventory, $15,000 for insurance premiums, and $10,000 for working capital. They can finance 70% of the total. How much cash do they need?
People Also Study
Previous Question
A contractor is evaluating two equipment options: Option A costs $85,000 to purchase with $1,200 monthly operating costs, or Option B can be rented for $3,800 monthly. At what point (in months) do the total costs become equal?
Next Question
In Florida, which professional relationship requires the contractor to ensure proper permitting and inspection scheduling for structural modifications?