In: Accounting
Since the SUTA rates changes are made at the end of each year, the available 2019 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. During the year, the company paid some of its state contributions after the January 31 cutoff of the following year. The penalty for tardiness is shown in the following calculation of the firm's net FUTA tax:
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 cutoff—$3,000 × 100% credit | (3,000.00) | ||||||
After 1/31 cutoff—$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.
Peroni Company paid wages of $170,500 this year. Of this amount, $124,000 was taxable for net FUTA and SUTA purposes. The state's contribution tax rate is 3.1% for Peroni 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 Peroni Company would pay to the
federal government for its FUTA tax
$________
c. Amount that the company lost because of its
late payments
$_______
a. Calculation of amount of credit the company would receive against the FUTA tax for its SUTA contributions: $6311.6
Total taxable wages paid by Peroni Company: $124000
Gross FUTA tax ($124,000 × 0.060) | $7,440 | ||
Less 90% credit for state taxes paid late ($124,000 × 0.04 × 90%) | $3460 | ||
Less additional credit for state tax if rate were 5.4% [$70,000 × (0.054 − 0.031)] | $2852 | ||
Total credit | 6312 | ||
Net FUTA tax | $ 1128 |
b. Calculation
of amount that Peroni Company would pay to the federal government
for its FUTA tax
$1128.4
Gross FUTA tax ($124,000 × 0.060) | $7,440 | ||
Less 90% credit for state taxes paid late ($124,000 × 0.04 × 90%) | $3460 | ||
Less additional credit for state tax if rate were 5.4% [$70,000 × (0.054 − 0.031)] | $2852 | ||
Total credit | 6312 | ||
Net FUTA tax | $ 1128 |
c. Calculation of amount that the company
lost because of its late payments
$384
If Peroni Company had made its SUTA payments before the due date of Form 940, the credit for the payments (3.1%) and the additional credit (2.3%) would have provided a total credit of $6,696 and a FUTA tax savings of $384 as detailed below:
Total credit of SUT if payments made before due date:
$124000*3.1%=3844
$124000*2.3%=2852(additional credit if state rates were 5.4%)
total=$6696
Total credit of FUT if payments made before due date:
FUT tax rate:0.6%
$124000*.6%=$744
Savings: $1128.4-744=$384