In the following problem, use the net FUTA tax rate of 0.6% on the first $7,000
ID: 2447994 • Letter: I
Question
In the following problem, use the net FUTA tax rate of 0.6% on the first $7,000 of taxable wages.
Refer to Instruction 5-1. Faruga Company had FUTA taxable payrolls for the four quarters of 2014 of $28,400; $19,600; $16,500; and $8,900, respectively. The company was located in a state that was subject to a FUTA credit reduction of 0.3%. What was the amount of Faruga’s first required deposit of FUTA taxes? Round your answer to two decimal places.
In the following problem, use the net FUTA tax rate of 0.6% on the first $7,000 of taxable wages.
Explanation / Answer
FUTA is a tax paid by the employer. It is an employer contribution and not deducted from the employee. FUTA is a Federal Unemployment tax. In some states there will be State Unemployment Tax (SUTA). The rate and wage limit for SUTA varies from one state to another.
Generally, FUTA rate is 6% and 5.4% credit is given for the State Unemployment Taxes. So the effective FUTA tax rate will be 0.6%. However, sometimes there will be reduction in the State unemployment credit. This happens when a State Department of Labor funds are decreased and take loan from designated Federal Loan account and if the state was not able to repay the loan in the next two consecutive years. This credit reduction typically increases by 0.3% which is like in our question. So the employers in that state have to pay more FUTA taxes by that rate.
FUTA is paid on the FUTA taxable wages. The maximum FUTA taxable wages per employee per year is $7,000. In the question we have the FUTA taxable wages for each quarter, so we need not calculate the wage base. Let us calculate FUTA for each quarter.
Quarter
FUTA Taxable Payroll
FUTA Tax Rate
FUTA Tax (A)
Credit Reduction
Credit Reduction Amount (B)
Total FUTA Tax (A+B)
Accumulated Tax
1
$28,400
0.006
$170.40
0.003
$85.20
$255.60
2
$19,600
0.006
$117.60
0.003
$58.80
$176.40
$432.00
3
$16,500
0.006
$99.00
0.003
$49.50
$148.50
$580.50
4
$8,900
0.006
$53.40
0.003
$26.70
$80.10
$660.60.
Credit reduction is also applied on FUTA Taxable wages only. Total FUTA Tax for the year 2014 is $255.60 + $ 176.40 +$148.50 +$ 80.10 = $660.60
FUTA taxes need to pay when the accumulated FUTA Tax after adjustments exceed $ 500. In this case, in the first quarter it is $255.60. So we have to carry forward to the next quarter, in the 2nd Quarter, the accumulated FUTA tax is $ 432.00. Again we can carry forward further to the 3rd Quarter. In the 3rd Quarter accumulated FUTA tax is $ 580.50 which is more than $ 500. So the FUTA payment triggers here. However, Faruga Company will not pay entire $580.50 before the due date for paying the FUTA tax which is October 31st of the year because $580.50 includes the Credit Reduction Amount.
When a credit reduction applies, the liability owed for credit reduction need to be paid with the Fourth Quarter deposit.
The actual Federal tax payment to be made before Oct 31st is $170.40 + $ 117.60 + $ 99 = $387.00
Hence Faruga’s first required deposit of federal taxes is $ 387.00
Quarter
FUTA Taxable Payroll
FUTA Tax Rate
FUTA Tax (A)
Credit Reduction
Credit Reduction Amount (B)
Total FUTA Tax (A+B)
Accumulated Tax
1
$28,400
0.006
$170.40
0.003
$85.20
$255.60
2
$19,600
0.006
$117.60
0.003
$58.80
$176.40
$432.00
3
$16,500
0.006
$99.00
0.003
$49.50
$148.50
$580.50
4
$8,900
0.006
$53.40
0.003
$26.70
$80.10
$660.60.
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