Answer to Question #112587 in Accounting for Everlyn

Question

Use the net FUTA tax rate of 0.6% on the first $7,000 of taxable wages. Faruga Company had FUTA taxable payrolls for the four quarters of $38,400; $29,600; $16,500; and $8,900, respectively. What was the amount of Faruga’s first required deposit of FUTA taxes?

Answer 1

FUTA stands for the Federal Unemployment Tax Act. Per this act, a payroll tax is paid by employers on the wages of their employees. The funds collected from the FUTA tax go to the Federal Unemployment Trust Fund, which is administered by the U.S. Department of Labor. This tax is collected for the purpose of allocating this fund to state unemployment agencies. 7000\0.06=420

When calculating FUTA taxes, it is important to understand the kinds of incomes that need to be taxed. Ideally, the unemployment tax is calculated on taxable wages that fall under the first $7,000 per employee per year, and any amounts above $7,000 are not taxed. The taxable income comprises wages and salaries, commissions, bonuses, sick pay, vacation allowances, contributions to retirement plans, etc.

Therefore, the above value must be multiplied by the number of such employees

If for example there are 10 such workers, then

7000*0.06*10=4200

However, if a state’s fully paid these loans, it can claim the max tax credit reduction of 5.4%. It means that they will only pay 0.6% FUTA tax.

 4200*0.006=25.2