Final answer:
The total amount of federal and state unemployment tax for Palco Co. is obtained by adding the FUTA tax, calculated at a rate of 6.2% on a $1,200,000 taxable payroll, to the state unemployment tax, calculated at a reduced rate of 2%. The total is $98,400.
Step-by-step explanation:
To calculate the total amount of federal and state unemployment tax that Palco Co. must pay, we first need to consider both the Federal Unemployment Tax Act (FUTA) and the state unemployment tax rate. The FUTA tax is a federal tax collected from employers and is required on the first $7,000 in wages paid to each worker. In this case, Palco Co. has a FUTA tax rate of 6.2%. Additionally, the company is subject to a state contribution rate of 5.4%, but due to stable employment experience, it has been reduced to 2%.
The formula to calculate the FUTA tax is as follows:
FUTA Tax = Taxable Payroll × FUTA Tax Rate
The formula for the state unemployment tax is:
State Unemployment Tax = Taxable Payroll × State Unemployment Tax Rate
For Palco Co, with a taxable payroll of $1,200,000, the calculations would be:
FUTA Tax = $1,200,000 × 0.062 = $74,400
State Unemployment Tax = $1,200,000 × 0.02 = $24,000
Adding both the federal and state taxes together:
Total Unemployment Tax = FUTA Tax + State Unemployment Tax = $74,400 + $24,000 = $98,400
Therefore, the correct option answer for the total amount of federal and state unemployment tax for Palco Co. is b. $98,400.