What is the FUTA rate and wage base, and how do SUTA credits affect the net FUTA rate?

• A. FUTA 3.4% on first $10,000; SUTA credits up to 5.0% reduce to negative value.
• B. FUTA 1.0% on first $5,000; SUTA credits no effect.
• C. FUTA 6.0% on first $7,000 of wages; SUTA credits up to 5.4% reduce net FUTA to 0.6%.
• D. FUTA 6.0% on all wages; SUTA credits increase net FUTA.

Answer: (C)

The key idea is how FUTA combines a standard federal rate with a state unemployment tax credit. FUTA taxes are 6.0% on the first $7,000 of each employee’s wages in a year. The employer then receives a credit against that FUTA tax for state unemployment taxes paid (SUTA), up to 5.4%. When the full credit applies, the net FUTA tax becomes 0.6% on that $7,000 wage base. For example, an employee with $7,000 in wages would incur $420 in FUTA before credits, and with the maximum SUTA credit the net FUTA would be $42 (0.6% of 7,000). If the state credit is reduced, the net FUTA would be higher, but it can never go negative. The other options either mix up the wage base, the rate, or the effect of the SUTA credit (credits don’t increase the tax).