A general contractor has 12 employees with a total annual payroll of $480,000. If the FUTA tax rate is 0.6% on the first $7,000 of each employee's wages, what is the total FUTA tax liability?
Correct Answer
A) $504.00
FUTA is calculated on the first $7,000 per employee. 12 employees × $7,000 = $84,000 taxable wages. $84,000 × 0.6% = $504.00.
Why This Is the Correct Answer
FUTA tax is only calculated on the first $7,000 of wages per employee, regardless of their actual annual salary. With 12 employees, the total taxable wage base is 12 × $7,000 = $84,000. Applying the 0.6% FUTA rate to this taxable base gives us $84,000 × 0.006 = $504.00.
Why the Other Options Are Wrong
Option B: $252.00
This appears to use an incorrect tax rate of 1.0% instead of 0.6% ($84,000 × 0.01 = $840), or miscalculates the taxable wage base.
Option C: $2,880.00
This incorrectly applies the 0.6% rate to the entire $480,000 payroll ($480,000 × 0.006 = $2,880), ignoring the $7,000 per employee wage cap that limits FUTA taxation.
Memory Technique
Remember 'FUTA 7-6': FUTA applies to first $7,000 per employee at 0.6% rate. Count employees, not total payroll dollars.
Reference Hint
Business and Finance chapter covering payroll taxes and unemployment insurance requirements
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?