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 net FUTA tax rate for employers.

Example 5-1

Parlone Company has paid wages of $4,000 to an employee in State A. During the year, the employee is transferred to State B, which has a $7,000 taxable salary limitation for its state unemployment tax. The company has a credit of $4,000 against this $7,000 limit. Thus, the company has to pay State B's unemployment tax on only the next $3,000 of wages earned by that worker in State B during the remainder of the calendar year.

In April of the current year, Freeman Steel Company transferred Herb Porter from its factory in Nebraska to its plant in Michigan. The company's SUTA tax rates based on its experience ratings are 3.2% in Nebraska and 3.8% in Michigan. Both states base the tax on the first $9,000 of each employee's earnings. This year, Freeman Steel Company paid Herb Porter wages of $20,900; $2,800 were paid in Nebraska and the remainder in Michigan. Compute the following:

Round your answers to the nearest cent.

a. Amount of SUTA tax the company must pay to Nebraska on Porter's wages
$

b. Amount of SUTA tax the company must pay to Michigan on Porter's wages
$

c. Amount of the net FUTA tax on Porter's wages
$

Answer 1

Answer:

a. The required amount of SUTA tax paid to the state N is $89.60

b. The required amount of SUTA tax paid to the state O is $235.60.

c. The amount of net FUTA tax is $69.60.

As per the case, a company transferred its factory from N state to O state. The SUTA tax rates in N state is 3.2% and in the state O is 3.8%. The tax in both states charged on the first $9,000 of the employee's earning. The company pays wages of $20,900 including $2,800 paid in the state N and rest of the amount in the state O.

a. The amount of SUTA tax paid by the company to the state N can be computed as follows:

Amount of SUTA = $2,800*3.2% = $89.60

Hence, the required amount of SUTA tax paid to the state N is $89.60.

b. The amount of SUTA tax paid on wages of $18,100 [=$20,900 - $2,800] by the company to the state O can be computed as follows:

Amount of SUTA = ($9,000 - $2,800) *3.8%

                            = $6,200*3.8%

= $235.60

Hence, the required amount of SUTA tax paid to the state O is $235.60.

c. The amount of net FUTA tax on wages with credit reduction in state O of 1.2% can be computed as follows:

The tax rate applicable to a wage of the amount of $20,900 is 0.6%. Using this information, the net FUTA can be computed as follows:

FUTA tax payable = Federal Unemployment taxes payable-gross - credit for SUTA taxes paid in state O

                             = ($29,600*0.6%) - ($6,200*0.9%)

                             = $125.40 - $55.80

                             = $69.60

Hence, the amount of net FUTA tax is $69.60.