How to Calculate Unemployment Tax (FUTA)

What is the unemployment tax (FUTA) that would be paid by Terrence's employer, who worked for ABC Construction Company and earned $14,150? The Federal Unemployment Tax Act (FUTA) requires employers to pay a tax on the first $7,000 of an employee's wages. Given the FUTA tax rate of 6%, the employer would pay $420 towards FUTA for Terrence's wages.

In this scenario, Terrence worked for ABC Construction Company and earned $14,150. Now, let's break down how to determine the unemployment tax (FUTA) that his employer would need to pay:

1. Understand FUTA Tax Rate and Income Limit:

The FUTA tax rate is set at 6% (0.06) of the first $7,000 of an employee's annual wages. This means that the maximum FUTA tax that an employer would need to pay per employee is $420.

2. Calculate FUTA Tax for Terrence:

Since Terrence earned $14,150, the FUTA tax would only apply to the first $7,000 of his earnings. To calculate the FUTA tax, we multiply $7,000 by 0.06:

FUTA Tax = $7,000 x 0.06 = $420

3. Final Answer:

The correct amount of unemployment tax (FUTA) that Terrence's employer would need to pay is $420.

Understanding how to calculate FUTA tax is essential for employers to ensure compliance with federal regulations. By following the FUTA tax rate and income limit guidelines, businesses can accurately determine the amount of unemployment tax they need to pay for each employee.

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