Question

the rate 0.6% was used for the FUTA tax rate for employers.

As of June 30, 2017 (the computation date for the 2018 tax rate), Sanchez Company had a negative balance of $1,300 in its unemployment reserve account in State A. The company's average payroll over the last three 12-month periods amounted to $540,000. The unemployment compensation law of State A provides that the tax rate of an employer who has a negative balance on the computation date shall be 7.2% during the following calendar year.

Using the tax rate schedule presented below, compute the following:

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%

a. The smallest voluntary contribution that Sanchez Company should make in order to effect a change in its tax rate.
$

b. The amount of the tax savings as a result of the voluntary contribution if Sanchez Company's taxable payroll for 2018 is $620,000.
$

Answer 1

a. The smallest voluntary contribution that Sanchez Company should make in order to effect a change in its tax rate.	1300
Reserve Ratio = reserve account balance / annual payroll
Reserve Ratio = -$1300 / $540,000	-0.24%
The company's smallest voluntary contribution would be the amount to bring their negative unemployment balance to zero.
b.The amount of the tax savings as a result of the voluntary contribution if Sanchez Company's taxable payroll for 2018 is $620,000.
Tax Payroll	620000
New Tax Rate (7.2% - 6.7%)	0.50%
Tax savings before deducting contribution	3100
Tax payment with voluntary contribution	1300
Tax savings	1800