What is the FUTA tax rate and wage base for calculating federal unemployment tax?
Correct Answer
C) 0.6% on first $7,000 of wages
FUTA (Federal Unemployment Tax Act) requires employers to pay 0.6% on the first $7,000 of each employee's annual wages. This is after the credit for state unemployment taxes.
Why This Is the Correct Answer
FUTA (Federal Unemployment Tax Act) tax is calculated at 0.6% on the first $7,000 of each employee's annual wages. This rate applies after employers receive credit for state unemployment taxes paid, which reduces the gross FUTA rate of 6.0% down to the net rate of 0.6%. The $7,000 wage base is a federal cap that limits the amount of wages subject to FUTA tax per employee per year.
Why the Other Options Are Wrong
Option B: 0.6% on all wages
This describes Medicare tax, which is 1.45% on all wages with no wage base limit. Medicare tax funds healthcare benefits for retirees and is unrelated to unemployment insurance coverage.
Option D: 6.2% on first $147,000 of wages
While the 0.6% rate is correct for FUTA, this option incorrectly states it applies to all wages. FUTA tax only applies to the first $7,000 of each employee's annual wages, not their entire wage amount.
Memory Technique
Remember 'FUTA 6-7': 0.6% rate on first $7,000. Think 'Few Unemployed Take All' - FUTA covers a small amount (first $7K) at a small rate (0.6%).
Reference Hint
Look up payroll tax requirements in the Business and Finance Law chapter, specifically the section on federal employment taxes and unemployment insurance obligations.
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