A general contractor has three employees with annual wages of $45,000, $52,000, and $38,000 respectively. What is the total FUTA tax liability for the year?
Correct Answer
B) $126
FUTA tax is 0.6% on the first $7,000 of each employee's wages. Since all employees earn more than $7,000, the calculation is $7,000 × 3 employees × 0.006 = $126.
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. Since all three employees earn more than $7,000, the taxable wage base is capped at $7,000 per employee. The calculation is straightforward: $7,000 × 3 employees × 0.006 (0.6%) = $126 total FUTA liability.
Why the Other Options Are Wrong
Option A: $810
This answer ($378) appears to result from using an incorrect tax rate or wage base calculation, possibly confusing FUTA with other payroll tax calculations.
Option C: $378
This answer ($252) appears to be double the correct amount, possibly from incorrectly using 1.2% instead of 0.6% as the FUTA rate, or miscalculating the wage base.
Option D: $252
This answer ($810) likely comes from incorrectly applying the 0.6% rate to the total of all wages ($135,000 × 0.006 = $810) instead of applying it only to the first $7,000 per employee.
Memory Technique
Remember 'FUTA 6-7': 0.6% rate on first $7,000 per employee. Think 'unemployment tax is small and capped low per person.'
Reference Hint
Business and Finance chapter covering Federal Payroll Taxes and Employment Tax Obligations
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