An employee earns $3,200 gross pay for the month. Calculate the employer's FUTA tax liability for this employee.
Correct Answer
C) $19.20
FUTA tax is 0.6% on the first $7,000 of wages per year. For monthly pay of $3,200, the FUTA tax is $3,200 × 0.6% = $19.20 (assuming this doesn't exceed the annual $7,000 wage base).
Why This Is the Correct Answer
FUTA (Federal Unemployment Tax Act) tax is calculated at 0.6% on the first $7,000 of annual wages per employee. Since the monthly gross pay of $3,200 is within the annual wage base limit, the full amount is subject to FUTA tax. The calculation is straightforward: $3,200 × 0.006 = $19.20.
Why the Other Options Are Wrong
Option B: $46.40
$192.00 would result from incorrectly using 6.0% instead of 0.6%, which is a common decimal point error when converting the percentage to decimal form.
Option D: $0.00
$0.00 is incorrect because FUTA tax applies to wages up to $7,000 annually per employee, and this monthly wage of $3,200 falls within that taxable wage base.
Memory Technique
Remember 'FUTA is 0.6% on 7K' - the rhyme helps recall both the rate and wage base limit for Federal Unemployment Tax.
Reference Hint
Look up payroll tax calculations in the Business and Finance chapter, specifically the section on employer tax obligations and FUTA 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?