A general contractor has an employee who earns $52,000 annually. What is the employer's FUTA tax liability for this employee for the year?
Correct Answer
B) $42.00
FUTA tax is calculated on the first $7,000 of wages at 0.6% (after state credit). $7,000 × 0.006 = $42.00. Even though the employee earns $52,000, FUTA only applies to the first $7,000.
Why This Is the Correct Answer
FUTA (Federal Unemployment Tax Act) tax is calculated at 0.6% on only the first $7,000 of each employee's annual wages, assuming the employer receives the maximum state unemployment tax credit. The calculation is straightforward: $7,000 × 0.006 = $42.00. It doesn't matter that the employee earns $52,000 annually - FUTA tax liability caps at the first $7,000 of wages per employee.
Why the Other Options Are Wrong
Option A: $420.00
$312.00 would result from incorrectly applying the 0.6% rate to $52,000 ($52,000 × 0.006 = $312), but FUTA only applies to the first $7,000 of wages, not the entire annual salary.
Option C: $78.00
$78.00 appears to be a calculation error, possibly from applying an incorrect rate or wage base that doesn't align with current FUTA requirements.
Memory Technique
Remember 'FUTA 7-6': FUTA applies to the first $7,000 at 0.6% rate. Think '7 and 6 tenths' to recall both the wage base ($7,000) and rate (0.6%).
Reference Hint
Look up 'Federal Unemployment Tax Act (FUTA)' or 'Payroll Taxes' in your business law or construction business management reference materials.
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