A contractor's quarterly payroll totals $180,000 with 15 employees. All employees exceed the FUTA wage base by the end of the quarter. What is the maximum annual FUTA tax liability for this contractor?
Correct Answer
D) $630
FUTA tax is 0.6% on the first $7,000 per employee annually. With 15 employees: 15 × $7,000 × 0.6% = 15 × $42 = $630 maximum annual FUTA tax.
Why This Is the Correct Answer
FUTA (Federal Unemployment Tax Act) tax is calculated at 0.6% on only the first $7,000 of wages per employee annually. Since all employees exceeded the wage base, each employee reaches the maximum taxable amount of $7,000. The calculation is straightforward: 15 employees × $7,000 wage base × 0.6% tax rate = $630 total annual FUTA liability.
Why the Other Options Are Wrong
Option A: $1,080
$1,080 would result from incorrectly using a 0.9% tax rate instead of the correct 0.6% rate, or miscalculating the wage base per employee.
Option C: $10,800
$4,320 appears to use an incorrect wage base calculation, possibly multiplying the quarterly payroll by an incorrect percentage rather than using the per-employee wage base limit.
Memory Technique
Remember 'FUTA 7-6': $7,000 wage base and 0.6% rate. Think 'Seven thousand, point-six percent' for quick recall during calculations.
Reference Hint
Look up Federal Unemployment Tax Act (FUTA) requirements in the Business and Finance chapter, specifically payroll tax calculations and wage base limitations.
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