A construction company has three employees with annual wages of $35,000, $45,000, and $65,000 respectively. What is the total FUTA tax liability for these employees?
Correct Answer
C) $126.00
FUTA tax is 0.6% on the first $7,000 of each employee's wages. Since all employees exceed $7,000, the calculation is: 3 employees × $7,000 × 0.6% = $126.00.
Why This Is the Correct Answer
FUTA (Federal Unemployment Tax Act) tax is calculated at 0.6% on only the first $7,000 of each employee's annual wages. Since all three employees earn more than $7,000, the taxable wage base is capped at $7,000 for each employee. The calculation is straightforward: 3 employees × $7,000 × 0.6% = $126.00 total FUTA liability.
Why the Other Options Are Wrong
Option A: $252.00
This answer ($870.00) incorrectly applies the 0.6% rate to the total of all wages ($145,000) rather than limiting each employee to the $7,000 wage base cap.
Option B: $870.00
This answer ($147.00) suggests an error in either the tax rate calculation or wage base determination, possibly mixing up FUTA with other payroll tax calculations.
Option D: $147.00
This answer ($252.00) appears to double the correct amount, possibly from incorrectly applying a 1.2% rate instead of 0.6%, or miscalculating the wage base.
Memory Technique
Remember 'FUTA 76': FUTA rate is 0.6% (sounds like 'six') on first $7,000 (seven-six). Both numbers contain the digit pattern that helps recall the wage base and rate.
Reference Hint
Look up 'Payroll Taxes' or 'Federal Unemployment Tax Act (FUTA)' in your business law or construction management reference materials, typically found in employment/labor law chapters.
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