Calculate the FUTA tax liability for an employee who earned $45,000 in wages during the year.
Correct Answer
D) $42
FUTA tax is 0.6% on the first $7,000 of wages per employee. $7,000 × 0.006 = $42. Wages above $7,000 are not subject to FUTA tax.
Why This Is the Correct Answer
FUTA (Federal Unemployment Tax Act) tax is calculated at a rate of 0.6% on only the first $7,000 of wages earned by each employee per year. This is a wage base limit, meaning any earnings above $7,000 are exempt from FUTA tax. Even though the employee earned $45,000, only the first $7,000 is subject to the tax, resulting in $7,000 × 0.006 = $42.
Why the Other Options Are Wrong
Option B: $315
$315 appears to use an incorrect tax rate or calculation method. This amount doesn't correspond to any standard FUTA calculation using either the correct wage base of $7,000 or the full $45,000 salary with the proper 0.6% rate.
Option C: $450
$270 incorrectly applies the 0.6% FUTA rate to $45,000 ($45,000 × 0.006 = $270). This ignores the critical wage base limit of $7,000 per employee. FUTA tax only applies to the first $7,000 of wages, not the entire annual salary.
Memory Technique
Remember 'FUTA 6-7-42': 0.6% rate, $7,000 wage base, $42 maximum tax per employee per year.
Reference Hint
Look up 'Payroll Taxes' or 'Federal Unemployment Tax Act (FUTA)' in your business law or construction business management reference materials.
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