Question

For which of the following taxes is there a ceiling on the amount of employee annual earnings subject to the​ tax?

A.

FICAminus−OASDI

Your answer is not correct.

B.

State unemployment taxes

C.

Federal unemployment taxes

D.

All of these answers are correct.

The correct answer is D

Explain:

Answer 1

FICA - OASD

FICA Stands Federal Insurance Contribution Act. OASD is an abbreviation for Old Age, Survivors and Disability Insurance ( Social Security).

It is the duty of the employer to withheld from the salary of the employee a certain sum towards the social security.The Certain sum as said earlier is 6.2 % of the salary of an employee. It is also important to note that the employer also pay the same amount towards the social security.The Wage base salary is $ 97500 for the year. Once that amount is earned, employer and employee not required to pay towards the social security.

FUTA AND SUTA both are introduced to mitigate the loss to an employee in case of unemployment.

What is FUTA ?

• To Mitigate the loss to the person at the time of the unemployment, the Federal Unemployment Tax Act was introduced.
• The Federal Unemployment Tax Act ("FUTA ") is a payroll tax , that businesses must pay annually or quarterly to fund unemployment benefits for employees who lose their jobs. Most businesses also have to comply with State Unemployment Tax Act (SUTA), which coordinates with the federal tax.

STATEMENTS

1. FUTA is subject to a 5.4 percent reduction based on employer and state factor

The Statement is correct- It is to noted that although The 2019 FUTA tax rate is 6% on the first $7,000 in wages that you paid to an employee during the calendar year but the federal government usually grants a credit of 5.4% to business owners who have paid their state unemployment taxes on time. This effectively brings the FUTA tax rate down to 0.6%.

So to avail the reduction, you need to first pay the state unemployment taxes.

2. FUTA applies to all companies

The Statement is incorrect - FUTA is not applicable to all companies. It is applicable to those companies which comply with any of the two conditions as mentioned below:

• You paid employees at least $1,500 in wages in a calendar quarter during the current or previous year
• You employed one or more workers for at least some part of the day during 20 or more different weeks in the current or previous year. Full-time, part-time, and seasonal W-2 employees count. Don’t count independent contractors.

3. FUTA is subject to a $7,000 wage base per employee

The Statement is correct- The 2019 FUTA tax rate is 6% on the first $7,000 in wages that you paid to an employee during the calendar year. After the first $7,000 in annual wages, you don’t have to pay taxes.So we can say that the FUTA is subject to a $7000 Wage base rate.

4. FUTA is an employer-only tax.

The Statement is Correct - The FUTA Tax is paid by the employer to mitigate the loss to the employee.

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