A company has total wages of $450,000 for the year. If the SUTA rate is 2.7% on the first $7,000 of each employee's wages, and they have 25 employees who each earned more than $7,000, what is the total SUTA tax owed?
Correct Answer
B) $4,725
SUTA is calculated on the first $7,000 per employee. 25 employees × $7,000 = $175,000 taxable wages. $175,000 × 2.7% = $4,725 total SUTA tax.
Why This Is the Correct Answer
SUTA (State Unemployment Tax Act) tax is calculated only on the first $7,000 of each employee's wages, regardless of their total earnings. Since all 25 employees earned more than $7,000, the taxable wage base is exactly $7,000 per employee. The calculation is: 25 employees × $7,000 = $175,000 taxable wages, then $175,000 × 2.7% = $4,725 total SUTA tax.
Why the Other Options Are Wrong
Option C: $7,350
This answer incorrectly uses a higher wage base or tax rate in the calculation, possibly applying the 2.7% rate to a larger amount than the correct $175,000 taxable wage base.
Option D: $18,900
This answer likely results from applying the SUTA rate to an incorrect wage base, possibly using the total company wages or miscalculating the per-employee taxable amount.
Memory Technique
Remember 'SUTA CAPS' - SUTA has a wage Cap per employee, Apply the rate to capped wages only, Per employee limit, not total company wages
Reference Hint
Business and Finance chapter covering payroll taxes and unemployment insurance calculations
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