A contractor has three employees with wages of $35,000, $48,000, and $72,000. If the state unemployment tax (SUTA) rate is 2.7% on the first $10,000 of wages, what is the total SUTA tax liability?
Correct Answer
C) $810
SUTA is calculated on the first $10,000 of each employee's wages. Total taxable wages = $10,000 × 3 employees = $30,000. SUTA tax = $30,000 × 0.027 = $810.
Why This Is the Correct Answer
SUTA (State Unemployment Tax Act) is calculated only on the first $10,000 of each employee's annual wages, regardless of their total earnings. Since all three employees earn more than $10,000, the taxable wage base is $10,000 per employee. The total taxable wages are $30,000 ($10,000 × 3 employees), and multiplying by the 2.7% rate gives $810 in total SUTA liability.
Why the Other Options Are Wrong
Option A: $540
$270 incorrectly calculates SUTA for only one employee ($10,000 × 0.027 = $270). This error occurs when someone forgets to multiply by the number of employees or misunderstands that SUTA applies to each employee individually up to the wage cap.
Option B: $4,185
$540 incorrectly calculates SUTA for only two employees ($10,000 × 2 × 0.027 = $540). This error occurs when someone miscounts the number of employees or accidentally excludes one employee from the calculation, resulting in an understated tax liability.
Option D: $270
$4,185 incorrectly applies the 2.7% rate to the total gross wages of all employees ($35,000 + $48,000 + $72,000 = $155,000 × 0.027 = $4,185). This ignores the crucial $10,000 wage cap per employee that limits SUTA taxable wages.
Memory Technique
Remember 'SUTA CAPS' - SUTA has a wage Cap per employee, Apply to all employees, Per-employee basis, Sum the capped amounts then multiply by rate
Reference Hint
Business and Finance chapter covering payroll taxes and unemployment insurance requirements
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