Business FinancesQuestion 1609 of 1632
A California employer paid one employee $30,000 of wages in tax year 2025. FUTA is 6.0% on the first $7,000 of each employee's wages, and California's 5.4% state credit was cut by a 1.2% credit reduction that year. What FUTA tax does the employer owe on this employee?
a.$42, being 0.6% of the $7,000 wage base
b.$540, being 1.8% of the full $30,000 paid
c.$1,800, being 6.0% of the full $30,000 paid
d.$126, being 1.8% of the $7,000 wage base
Explanation
Work the rate first, then the base. The 6.0% statutory rate less the 5.4% credit gives 0.6%, and California's 1.2% credit reduction for 2025 puts it back to 1.8%. FUTA is charged only on the first $7,000 of each employee's wages, not on everything paid, so 1.8% of $7,000 is $126. The $42 answer forgets that the credit was reduced; the $540 and $1,800 answers charge the tax against the whole $30,000.
Law Reference: IRS Tax Topic 759 (FUTA); IRS Instructions for Schedule A (Form 940) for 2025This topic, taught in full in the CSLB Law & Business guide. CSLB Law & Business — Complete Study Guide (2026) — PDF + EPUB, $24.99 · 14-day refund →
Practice all 1632 questions free — no signup required.
Own the complete CSLB Law & Business guide — PDF + EPUB, $24.99 →
Related questions on this topic
- A contractor with a 2.0 current ratio has $160,000 in current liabilities. What are his current assets?
- A contractor's markup covers overhead and profit. If direct costs are $80,000 and he applies a combined 25% O&P markup, the profit portion is $8,000 while overhead recovery is $12,000. What is the contract price and total O&P?
- A contractor mixing personal and business funds in one account risks:
- A contractor's books for the 2026 calendar year show $61,400 of wages paid to two payroll employees, and $1,800 paid to a licensed drywall subcontractor who is not an employee. Which year-end information returns must the contractor issue?
- A contractor's balance sheet shows current assets of $180,000 and current liabilities of $215,000. What is the working capital, and what does the answer tell the contractor?
- A contractor signs two home improvement contracts on the same morning: one for $7,500 and one for $62,000. What is the largest down payment the contractor may lawfully demand on each job?
Last reviewed: · editorial process
PrepPass team · Verified against California CSLB Contractor License Law & Business Exam · How we review
Reviewed by Abraham Chen — Licensed California General Contractor (CSLB License #1101856 — verify)