A California contractor's monthly payroll is $85,000. If the Personal Income Tax (PIT) withholding averages 6.5% and the employer pays Unemployment Insurance (UI) at 3.4%, what are the total monthly tax obligations to EDD?
Correct Answer
C) $8,415
PIT withholding: $85,000 × 6.5% = $5,525. UI contribution: $85,000 × 3.4% = $2,890. Total to EDD: $5,525 + $2,890 = $8,415.
Why This Is the Correct Answer
Option C ($8,415) is correct. The EDD collects two amounts from the employer's payroll: (1) PIT withholding — amounts withheld from employees' wages on their behalf: $85,000 × 6.5% = $5,525; and (2) UI contributions — paid by the employer: $85,000 × 3.4% = $2,890. Total monthly EDD obligation = $5,525 + $2,890 = $8,415. Both are remitted to the EDD through the payroll tax system.
Why the Other Options Are Wrong
Option A: $2,890
Option A ($2,890) is incorrect. This represents only the employer's Unemployment Insurance contribution ($85,000 × 3.4% = $2,890), ignoring the PIT withholding that must also be remitted to EDD. The question asks for total EDD obligations, which includes both components.
Option B: $5,525
Option B ($5,525) is incorrect. This represents only the PIT withholding ($85,000 × 6.5% = $5,525), ignoring the UI contribution. Again, the question requires the sum of both EDD-bound amounts.
Option D: $8,500
Option D ($8,500) is incorrect. This appears to result from rounding or an arithmetic error — perhaps applying a combined 10% rate to the payroll ($85,000 × 10% = $8,500) rather than calculating the two rates separately and summing them. The correct combined rate is 6.5% + 3.4% = 9.9%, yielding $8,415.
Memory Technique
EDD receives two streams of money from employer payroll: (1) PIT — employee money that the employer withholds and forwards (like a middleman); (2) UI — employer's own contribution for unemployment insurance. Add them: PIT + UI = total EDD obligation. Think 'PIT + UI = EDD pie.'
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