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Roxy Co., which has a taxable payroll of $800,000, 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 Roxy Co.?

a. $93,600
b. $65,600
c. $32,000
d. $22,400

User Mozman
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1 Answer

5 votes

Final answer:

The total unemployment tax for Roxy Co. would be the sum of the FUTA tax at 0.6% on the first $7,000 of wages per employee and the state unemployment tax at 2% of the entire $800,000 taxable payroll. The state tax would amount to $16,000, while the FUTA tax depends on the number of employees and is only applicable on the first $7,000 of their wages.

Step-by-step explanation:

The total amount of federal and state unemployment tax for Roxy Co., with a taxable payroll of $800,000, can be calculated by taking into account both the FUTA tax and the state unemployment tax rate. The FUTA tax rate is 6.2%, but this is reduced to 0.6% if the employer receives a credit for state unemployment taxes paid. The standard state contribution rate is 5.4%; however, Roxy Co.'s rate has been reduced to 2% because of stable employment experience. The FUTA tax is applicable on the first $7,000 of each employee's wages, meaning that the federal tax is calculated as 0.6% of $7,000, not on the whole $800,000 payroll.

For the state tax, Roxy Co. would apply its 2% rate to the entire taxable payroll. Therefore, the calculations for the total tax would be FUTA tax at 0.6% on the first $7,000 for each employee, plus the state tax of 2% of $800,000 for Roxy Co. After calculating these amounts, we find that the total tax can be determined as follows:

  • FUTA tax = 0.6% of $7,000 = $42 per employee
  • State tax = 2% of $800,000 = $16,000

Because the FUTA tax is only on the first $7,000, the actual federal tax will be less than 0.6% of the entire payroll. Assuming a sufficient number of employees to maximize the FUTA tax, the total state and federal tax for Roxy Co. would be $16,000 for state tax, plus the FUTA tax for each employee, which will be significantly less than 0.6% of the entire payroll. Neither of the given options correctly reflects this calculation, suggesting an error either in the question or the provided answer choices.

User Mostafa Efafi
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