A contractor's annual payroll is $850,000. If the FICA rate is 7.65%, FUTA rate is 0.6%, and SUTA rate is 2.7%, what is the total annual payroll tax burden?
Correct Answer
D) $93,075
Total payroll tax rate = 7.65% + 0.6% + 2.7% = 10.95%. Annual burden = $850,000 × 10.95% = $93,075. This represents the employer's total payroll tax obligation.
Why This Is the Correct Answer
The correct answer is B ($93,075) because it properly calculates the total employer payroll tax burden by adding all three tax rates together. FICA (7.65%) + FUTA (0.6%) + SUTA (2.7%) = 10.95% total rate. When applied to the $850,000 annual payroll, this yields $850,000 × 10.95% = $93,075. This represents the contractor's complete annual payroll tax obligation to federal and state agencies.
Why the Other Options Are Wrong
Option B: $95,225
Option A ($89,825) is incorrect because it represents approximately 10.57% of the payroll, suggesting an error in adding the tax rates or in the multiplication calculation.
Option C: $89,825
Option C ($95,225) is incorrect because it represents approximately 11.2% of the payroll, which is higher than the correct combined tax rate of 10.95%.
Memory Technique
Remember 'FFS' for the three employer taxes: FICA (Federal Insurance), FUTA (Federal Unemployment), SUTA (State Unemployment). Always add all three rates before calculating the dollar amount.
Reference Hint
Look up payroll tax calculations in the Business and Finance chapter, specifically the section on employer tax obligations and FICA, FUTA, and SUTA requirements.
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