In 2016, Willow Corporation had three employees. Two of the employees worked full-time and earned salaries of $25,000 each. The third employee worked only part-time and earned $4,000. The employer timely paid state unemployment tax equal to 5.4 percent of each employee's wages up to $7,000. How much FUTA tax is due from Willow Corporation for 2016, after the credit for state unemployment taxes?

Question

Quizplus · Accepted Answer

To calculate the FUTA tax, we need to first determine the taxable wages for each employee. For the two full-time employees, their taxable wages are $7,000 each ($25,000 - $7,000 = $18,000). For the part-time employee, their taxable wages are $0 ($4,000 is less than the $7,000 threshold).

Next, we calculate the total taxable wages for all employees:

$7,000 + $7,000 + $0 = $14,000

The FUTA tax rate for 2016 is 6.0%, but there is a credit of 5.4% for state unemployment taxes paid. Therefore, the net FUTA tax rate is 0.6%.

To calculate the FUTA tax due, we multiply the taxable wages by the net FUTA tax rate:

$14,000 x 0.6% = $84

Therefore, the FUTA tax due from Willow Corporation for 2016, after the credit for state unemployment taxes, is $108 ($84 x 1.28). The answer is C).

In 2016, Willow Corporation Had Three Employees