Reference no: EM131985335
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 2016 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
To illustrate the tax saving that may be realized as a result of making voluntary contributions, consider the following case of Krane Company, which is subject to the unemployment compensation law of a state that uses the reserve-ratio formula to determine experience ratings. The following contribution rate schedule applies for 2018:
| Reserve Ratio |
Rate |
| 0% to less than 1% |
6.2% |
| 1% to less than 1.4% |
5.6% |
| 1.4% to less than 1.8% |
5.0% |
| 1.8% to less than 2.2% |
4.4% |
| 2.2% to less than 2.6% |
3.8% |
| 2.6% to less than 3.0% |
3.2% |
| 3.0% and over |
2.6% |
For the three 12-month periods ending on June 30, 2017, the company had an average annual taxable payroll of $330,000. This is the base that the state uses as the average payroll. As of June 30, 2017, the credits to the employer's account exceeded the benefits paid by $6,800.
Thus, the 2017 reserve ratio is 2.06 percent ($6,800 ÷ $330,000), which would result in the assignment of a 4.4 percent tax rate, as shown in the preceding table. If the employer's 2018 total taxable payroll were $390,000, the SUTA contribution would amount to $17,160.
If Krane Company makes a voluntary contribution into the state fund within the time period specified by the state law, the tax for 2018 will be less. For example, if the company contributes $460, the reserve ratio will be 2.2 percent ($7,260 ÷ $330,000). As a result, the tax rate will be reduced to 3.8 percent, with the following savings realized in 2018:
| Tax payment with no voluntary contribution (4.4% × $390,000) |
|
|
$17,160 |
| Tax payment with voluntary contribution |
$460 |
|
|
| Reserve ratio (3.8% × $390,000) |
14,820 |
|
15,280 |
| Tax savings |
|
|
$1,880 |
The following unemployment tax rate schedule is in effect for the calendar year 2017 in State A, which uses the reserve ratio formula in determining employer contributions:
| Reserve Ratio |
Contribution Rate |
| 0.0% or more, but less than 1.0% |
6.7% |
| 1.0% or more, but less than 1.2% |
6.4% |
| 1.2% or more, but less than 1.4% |
6.1% |
| 1.4% or more, but less than 1.6% |
5.8% |
| 1.6% or more, but less than 1.8% |
5.5% |
| 1.8% or more, but less than 2.0% |
5.2% |
| 2.0% or more, but less than 2.2% |
4.9% |
| 2.2% or more, but less than 2.4% |
4.6% |
| 2.4% or more, but less than 2.6% |
4.3% |
| 2.6% or more, but less than 2.8% |
4.0% |
| 2.8% or more, but less than 3.0% |
3.7% |
| 3.0% or more, but less than 3.2% |
3.4% |
| 3.2% or more |
3.1% |
Hyram Company, which is located in State A, had an average annual payroll of $860,000 for the three 12-month periods ending on June 30, 2016 (the computation date for the tax year 2017).
As of June 30, 2016, the total contributions that had been made to Hyram Company's reserve account, in excess of the benefits charged, amounted to $17,888.
Compute the following:
a. Hyram Company's reserve ratio for 2016. Round your answer to two decimal places.
b. 2017 contribution rate for the company. Round your answer to one decimal place.
c. Smallest contribution that the company can make in order to reduce its tax rate if State A permits voluntary contributions
d. Tax savings realized by the company, taking into consideration the voluntary contribution made in (c) if the taxable payroll in 2017 is $990,000.
|
Describe the prospective consumers of the product
: BSB10186-6 - International Marketing - Describe the general nature, description, uses, benefits, cost and other characteristics of the product selected
|
|
Discuss about the multinational financial management
: What are the six major factors which distinguish multinational financial management from financial management as practiced by a purely domestic firm?
|
|
The proportion of the optimal risky portfolio
: The risk-free rate of return is 5%. The proportion of the optimal risky portfolio that should be invested in stock B is ?????????approximately
|
|
What is the average accounts receivable figure
: Skye Flyer, Inc., has weekly credit sales of $48, 200, and the average collection period is 28 days. What is the average accounts receivable figure?
|
|
Compute the smallest contribution that the company can make
: As of June 30, 2016, the total contributions that had been made to Hyram Company's reserve account, in excess of the benefits charged, amounted to $17,888.
|
|
Which statements more accurately reflect the current law
: Which of the following statements more accurately reflect the current law on lifting (or piercing) the corporate veil and why
|
|
How can a trader create a bear spread
: How can a trader create a bear spread and what will the profit/loss be if the stock at expiration was $55?
|
|
What is the incremental cash flow related to working capital
: Six Twelve, Inc., is considering opening up a new convenience store in downtown New York City. The expected annual revenue at the new store is $600,000.
|
|
Compute the realized rate of return for an investor
: Compute the realized rate of return for an investor who purchased the bonds when they were issued and held them until they were called.
|