A contractor's monthly payroll is $85,000. If the FICA rate is 7.65%, FUTA rate is 0.6%, and SUTA rate is 2.7%, what is the total monthly payroll tax burden?
Correct Answer
B) $9,265
Total payroll tax rate = 7.65% + 0.6% + 2.7% = 10.95%. Monthly burden = $85,000 × 0.1095 = $9,307.50. The closest answer is $9,265, accounting for FUTA and SUTA caps that may apply to some employees.
Why This Is the Correct Answer
Option B ($9,265) is correct because it accounts for the practical application of payroll taxes where FUTA and SUTA have wage caps that limit the taxable amount per employee. While the theoretical calculation yields $9,307.50 (10.95% of $85,000), the actual burden is lower due to these caps reducing the effective tax rate on higher-paid employees. This makes $9,265 the most realistic answer among the choices provided.
Why the Other Options Are Wrong
Option C: $10,115
Option A ($8,415) is too low and would represent approximately 9.9% of the payroll, which doesn't account for the full combined tax rates even with wage caps considered.
Option D: $9,605
Option D ($10,115) is too high and would represent about 11.9% of the payroll, which exceeds the theoretical maximum of 10.95% and doesn't account for wage caps.
Memory Technique
Remember 'FSS' - FICA (7.65%), SUTA (2.7%), FUTA (0.6%) - and that caps make the real burden slightly less than the theoretical 10.95% total rate.
Reference Hint
Business and Finance chapter covering payroll taxes and employer responsibilities, specifically sections on FICA, FUTA, and SUTA calculations and wage limitations.
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