A construction company has three employees with annual wages of $45,000, $38,000, and $52,000. What is the total FUTA tax owed?
Correct Answer
B) $126.00
FUTA applies to the first $7,000 per employee at 0.6%. With three employees: 3 × $7,000 × 0.6% = $126.00. The higher wages don't affect FUTA since it caps at $7,000 per employee.
Why This Is the Correct Answer
FUTA (Federal Unemployment Tax Act) tax is calculated at 0.6% on only the first $7,000 of wages per employee per year. Since all three employees earn more than $7,000, the taxable wage base is capped at $7,000 for each employee. The calculation is: 3 employees × $7,000 × 0.6% = $126.00. The actual wages above $7,000 are irrelevant for FUTA calculation.
Why the Other Options Are Wrong
Option A: $378.00
This calculation appears to use an incorrect rate or wage base, possibly calculating on a partial amount or using the wrong percentage rate for FUTA tax.
Option D: $810.00
This appears to calculate FUTA on the full wages ($45,000 + $38,000 + $52,000 = $135,000 × 0.6% = $810), which ignores the $7,000 per employee wage cap that is fundamental to FUTA calculations.
Memory Technique
Remember 'FUTA 7-6': $7,000 wage cap and 0.6% rate. Think 'FUTA stops caring after $7K per person.'
Reference Hint
Business and Finance chapter, specifically the section on Federal Payroll Taxes and Employment Tax Obligations
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