A construction company has three employees with annual wages of $45,000, $52,000, and $38,000. What is the total FUTA tax owed for these employees for the year?
Correct Answer
A) $126.00
FUTA applies to the first $7,000 of wages per employee at 0.6% rate. Since all employees exceed $7,000, the calculation is $7,000 × 3 employees × 0.6% = $126.00.
Why This Is the Correct Answer
FUTA (Federal Unemployment Tax Act) tax is calculated at a rate of 0.6% on only the first $7,000 of each employee's annual wages. Since all three employees earn more than $7,000 annually, the taxable wage base is capped at $7,000 per employee. The total calculation is $7,000 × 3 employees × 0.6% = $126.00, making option A correct.
Why the Other Options Are Wrong
Option C: $252.00
This answer ($378.00) represents triple the correct amount, possibly from using an incorrect rate of 1.8% or making an error in the number of employees or wage base calculation.
Option D: $378.00
This answer ($252.00) represents double the correct amount, likely from incorrectly using a 1.2% rate instead of the correct 0.6% FUTA rate, or miscalculating the wage base.
Memory Technique
Remember 'FUTA 7-6': $7,000 wage cap and 0.6% rate. Think 'FUTA stops at 7, taxes at 6-tenths percent.'
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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