A contractor has three employees earning $45,000, $38,000, and $52,000 annually. What is the total FUTA tax liability for these employees for the year?
Correct Answer
C) $1,260
FUTA tax applies to the first $7,000 of each employee's wages at 0.6%. For three employees: 3 × $7,000 × 0.6% = $1,260. The tax cap applies per employee regardless of their total wages.
Why This Is the Correct Answer
FUTA (Federal Unemployment Tax Act) tax is calculated at 0.6% on the first $7,000 of wages per employee per year. Since all three employees earn more than $7,000 annually, the full $7,000 wage base applies to each employee. The calculation is 3 employees × $7,000 wage base × 0.6% tax rate = $1,260 total FUTA liability.
Why the Other Options Are Wrong
Option A: $810
This amount ($1,620) incorrectly applies the full 6.0% FUTA rate without accounting for the 5.4% credit for state unemployment taxes that reduces the effective rate to 0.6%
Option D: $1,620
This amount ($1,314) likely includes an error such as applying FUTA to wages above the $7,000 cap or using an incorrect tax rate of approximately 0.628%
Memory Technique
Remember 'FUTA 7-6': FUTA applies to first $7,000 at 0.6% rate. Think '7-6' like a basketball score to remember the key numbers.
Reference Hint
Look up 'Payroll Taxes' or 'Federal Unemployment Tax' in your business law or construction business management reference materials
More Business & Finance Questions
A general contractor purchases equipment worth $45,000 with a useful life of 9 years and no salvage value. Using straight-line depreciation, what is the annual depreciation expense?
What is the typical recommended coverage amount for general liability insurance for a small to medium-sized general contracting business?
A contractor estimates startup costs of $75,000 for equipment, $25,000 for initial inventory, $15,000 for insurance premiums, and $10,000 for working capital. They can finance 70% of the total. How much cash do they need?
When establishing professional relationships with architects and engineers, what is the most important factor for a general contractor to consider?
A partnership agreement for a construction company should address all of the following EXCEPT:
A contractor purchases a truck for $60,000. After 5 years, it has accumulated depreciation of $35,000. What is the truck's book value?
A contractor's business plan projects first-year revenue of $500,000 with a 15% net profit margin. If actual revenue is $450,000 with the same profit margin, what is the variance in net profit?
Using the Modified Accelerated Cost Recovery System (MACRS), construction equipment is typically depreciated over how many years?
A contractor is comparing financing options for equipment purchase. Option A: $80,000 cash purchase. Option B: $20,000 down, $65,000 financed at 6% for 4 years. What is the total cost of Option B?
A contractor purchases equipment using a capital lease with a present value of $120,000. How should this be recorded on the balance sheet?