Answer to Question #111589 in Accounting for Everlyn

Question

Use the net FUTA tax rate of 0.6% on the first $7,000 of taxable wages.

Hunter Company had a FUTA taxable payroll of $192,700 for the year. Since the company is located in a state that has 1.5% FUTA credit reduction due to unpaid loans, determine Hunter's FUTA tax liability for the year.

Answer 1

The company credit reduction of 1.5 %, thus, we would compute its FUTA tax by reducing the 6% FUTA tax rate by a FUTA credit of only 3.9%. Of which is the standard 5.4% credit minus the 1.5 % credit reduction.

This would give an effective FUTA tax rate of 6% - 3.9% = 2.1 % for the year. Computing will be

2.1% x $7000 = $147 per year deposits the company will be needed.