Question

Preston Co., which has a taxable payroll of $500,000, is subject to FUTA tax of 6.2% and a state contribution rate of 5.4%. However, because of stable employment experience, the company's state rate has been reduced to 2%. What is the total amount of federal and state unemployment tax for Preston Co.?

a. $58,500
b. $41,000
c. $20,000
d. $14,000

Answer 1

the correct answer is b. $41,000.

Step-by-step explanation:

To calculate the total amount of federal and state unemployment tax for Preston Co., we must apply the rates provided to the taxable payroll. The company has a taxable payroll of $500,000. First, we calculate the FUTA (Federal Unemployment Tax Act) tax, which is 6.2% on the federal level. Second, we address the state unemployment tax. Initially, the state contribution rate is 5.4%, but due to stable employment experience, it has been reduced to 2%. We need to multiply the taxable payroll by these percentages to determine the total tax amounts.

The FUTA tax would be 6.2% of $500,000, which is $31,000 ($500,000 * 0.062). The state unemployment tax at the reduced rate of 2% would be $10,000 ($500,000 * 0.02). To find the total unemployment tax, we add both the federal and state amounts: $31,000 + $10,000 = $41,000.