Question

Since the SUTA rates changes are made at the end of each year and there is much discussion about changes to the FUTA rate, the available 2018 rates were used for FUTA and SUTA.

Note: For this textbook edition the rate 0.6% was used for the FUTA tax rate for employers.

Example 5-5

Sutcliffe Company had taxable wages totaling $87,500 in 2019. During the year, the company paid some of its state contributions after the January 31, 2020, cutoff. The penalty for tardiness is shown in the following calculation of the firm's net FUTA tax for 2019:

Amount of gross FUTA tax ($87,500 × 6.0%)			$5,250.00
State taxable wages	$87,500
Sutcliffe's SUTA tax rate	× 5.4%
Sutcliffe's SUTA tax	$  4,725
Breakdown of Sutcliffe's SUTA tax payments:
Before 1/31/20—$3,000 × 100% credit			(3,000.00)
After 1/31/20—$1,725 × 90% credit			(1,552.50)
Amount of net FUTA tax			$    697.50
If the company had made timely payments of its state contributions, the amount of its net FUTA tax would have been reduced to $525, for a savings of $172.50, as follows:
Amount of gross FUTA tax ($87,500 × 6.0%)			$5,250.00
Total taxable wages	$87,500
Credit against tax	× 5.4%
Total credit			4,725.00
Amount of net FUTA tax ($87,500 × 0.6%)			$   525.00
$697.50 − $525.00 = $172.50 savings

Example 5-6

Yeldon Company has a $70,000 federal and state taxable payroll and has earned a reduced state tax rate of 4 percent. If none of its state tax payments are timely, the FUTA tax calculation is as follows:

Gross FUTA tax ($70,000 × 0.060)			$4,200
Less 90% credit for state taxes paid late ($70,000 × 0.04 × 90%)	$2,520
Less additional credit for state tax if rate were 5.4% [$70,000 × (0.054 − 0.04)]	980
Total credit			3,500
Net FUTA tax			$  700

If Yeldon Company had made its SUTA payments before the due date of Form 940, the credit for the payments (4%) and the additional credit (1.4%) would have provided a total credit of $3,780 and a FUTA tax savings of $280.

Roofling Company paid wages of $319,600 this year. Of this amount, $193,900 was taxable for net FUTA and SUTA purposes. The state's contribution tax rate is 4.3% for Roofling Company. Due to cash flow problems, the company did not make any SUTA payments until after the Form 940 filing date. Compute the following; round your answers to the nearest cent.

a. Amount of credit the company would receive against the FUTA tax for its SUTA contributions
$

b. Amount that Roofling Company would pay to the federal government for its FUTA tax
$

c. Amount that the company lost because of its late payments
$

Answer 1

a) 90% credit for state taxes paid late ( $193,900 x 0.043 x 90%) = $ 7,503.93

Additional credit for state tax if rate were 5.4% [ $193,900 x (0.054 - 0.043) ] = $ 2,132.90

Total Credit = $ 7,503.93 + $ 2,132.90

= $ 9,636.83

b) Amount of Gross FUTA tax ( $193,900 x 0.06 ) = $ 11,634

Credit Available ( as calculated in part (a) ) = $ 9,636.83

Amount of Net FUTA tax = Gross FUTA tax - credit available

= $ 11,634 - $ 9,636.83

= $ 1,997.17

c) If the company had made timely payments of its state contributions, the amount of its net FUTA tax would have been reduced as follows :

1. Amount of Gross FUTA tax ( $193,900 x 0.06 ) = $ 11,634

2. Credit for state taxes paid ( $193,900 x 0.043 ) = $ 8,337.70

Additional credit for state tax if rate were 5.4% [ $193,900 x (0.054 - 0.043) ] = $ 2,132.90

  Total Credit =  $ 8,337.70 + $ 2,132.90

= $ 10,470.6

3.  Amount of Net FUTA tax = Gross FUTA tax - Credit available

= $ 11,634 - $ 10,470.6

= $ 1,163.4

Amount that the company lost because of its late payments = $ 1,997.17 - $ 1,163.4

= $ 833.77