Federal Regulations & Programs - Practice Questions

Lesson: Federal Regulations & Programs - Practice Questions

In this lesson, explore the intricacies of federal unemployment tax, or FUTA, as Nick Palazzolo, CPA, adeptly navigates through a series of practice questions. He clarifies common misconceptions about when FUTA tax liabilities arise, emphasizing the difference between actual and constructive payment of wages. Nick simplifies complex topics, such as FUTA's relationship with state unemployment taxes and the specifics of what constitutes taxable compensation, guiding you to the correct answers with clear explanations. The walkthrough not only reinforces understanding of FUTA regulations but also showcases how to effectively approach and solve practice questions.

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Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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We're running through our question here on federal regulations and programs. Which of the following statements is correct regarding the taxes payable under the federal unemployment tax, also known as FUTA? First answer choice, liability arises only when wages are actually not constructively paid to employees. Well, that's not the case. It's actually going to be in both of these cases. It's when constructively paid refers to wages that are credited to an employee's account and subject to their control. However, FUTA tax liability is determined based on both the actual and constructive wages paid to employees. So we're going to eliminate that, right? If they've accrued wages, if they've accrued income from that, that will count towards this tax. Next, credits for this tax are allowed to employers for certain state unemployment taxes paid by the employer. I'm going to keep that one on our radar for a second, not for any particular reason. The amount is withheld from the wages of all employees. What are our thoughts here? Well, it's not withheld from employee wages. Instead, it's paid directly by employers based on percentage of their employees' wages. So that is incorrect. Lastly here, the amount is determined as a percentage of all compensation paid to an employee. Well, FUTA tax liability, it's going to be calculated as a percentage of the wages paid to each employee up to a specified wage base. It's not going to apply to a percentage of all compensation paid to an employee such as bonuses or non-wage benefits, but as such, we're going to eliminate that, leaving us with just letter B here. And we know that going through what we talked about, the FUTA tax provides a credit offset system that allows employers to offset their federal FUTA tax liability with

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