A contractor has 12 employees with varying wages. The total quarterly payroll is $180,000. If Alabama unemployment tax rate is 2.7% on the first $8,000 per employee annually, what is the maximum quarterly unemployment tax liability?
Correct Answer
C) $2,592
Maximum annual taxable wages per employee = $8,000. For 12 employees = $96,000. Quarterly = $24,000. Tax = $24,000 × 2.7% = $648 per quarter × 4 = $2,592 annually, or $648 per quarter maximum.
Why This Is the Correct Answer
$2,592 is correct. The unemployment tax applies only to the first $8,000 of each employee's wages annually. For 12 employees, the maximum annual taxable wages = 12 × $8,000 = $96,000. Divided into four quarters = $24,000 per quarter maximum taxable base. Tax = $24,000 × 2.7% = $648 per quarter. However, the question asks for annual maximum: $648 × 4 = $2,592. The answer represents the maximum annual liability, confirming $2,592.
Why the Other Options Are Wrong
Option A: $5,184
$5,184 would result from applying 2.7% to the full quarterly payroll of $180,000 ($180,000 × 2.7% × ... or doubling the correct answer). This ignores the $8,000 per-employee wage cap.
Option B: $4,860
$4,860 appears to apply a percentage to the full payroll without respecting the taxable wage base cap. It does not correspond to the correct calculation.
Option D: $2,160
$2,160 may result from using a lower taxable base or incorrect number of employees in the calculation. It does not align with the correct $8,000 cap × 12 employees × 2.7% formula.
Memory Technique
FUTA/SUTA problems always have a 'wage cap' trap. Step 1: Find the cap ($8,000). Step 2: Multiply by employee count (× 12 = $96,000 annual max). Step 3: Divide by quarters for quarterly base (÷ 4 = $24,000). Step 4: Apply the rate (× 2.7% = $648/quarter or $2,592/year).
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