Question

In: Accounting

Use the net FUTA tax rate of 0.6% on the first $7,000 of taxable wages. ​...

Use the net FUTA tax rate of 0.6% on the first $7,000 of taxable wages.

​

a. Complete Part 2 of Form 940 based on the following information:

Total payroll for the year                                                   $913,590

Payroll to employees in excess of $7,000                         $421,930

Employer contributions into employees' 401(k) plans        $23,710

​

Source: Internal Revenue Service

​

b. If the employer is located in California, which has a credit reduction of 1.5%,

     what would be the amount of the credit reduction?

​

c. Complete Part 5 of Form 940 for the California employer given the breakdown of FUTA taxable

    wages for the year to be:

​

First quarter      $237,000

Second quarter                  $168,000

Third quarter   $54,000

Fourth quarter                   $8,950

   Yearly total      $467,950

Solutions

Expert Solution

Answer to a.

Form 940 Calculation

Part 2 of Form 940 determines your FUTA tax before adjustments. You will need the following information:

  1. The total payments to all employees for the calendar year.

i.e. 913,590

  1. The total amount of payments exempt from FUTA tax and the source of those payments. These exempt payments might include some fringe benefits, group life insurance, and retirement plan benefits.

i.e. 23,710

  1. The total of payments made to all employees in excess of $7000 for the year.

i.e. 421,930

Subtract 2. and 3. from 1. to get the total FUTA taxable wages, then multiply by 0.006 (0.6%) to get the total FUTA tax owed.

= 913,590 - 23,710 – 421,930

= 467,950

Answer to b.

If the employer is located in California, which has a credit reduction of 1.5%,

    the amount of the credit reduction would be credit reduction multiplied by FUTA eligible amount

therefore, 467,950 * 1.5% comes to 7019.25

Answer to c.

FUTA rate calculation

FUTA rate

0.60%

Add: Credit reduction rate

1.50%

Rate to be considered

2.10%

Number

FUTA @2.1%

16a

First quarter     

$237,000

4977

16b

Second quarter                  

$168,000

3528

16c

Third quarter  

$54,000

1134

16d

Fourth quarter                   

$8,950

187.95

17

   Yearly total     

$467,950

9826.95

ekkarill92 answered 2 years ago
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