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 5-9

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 employers 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 employers 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 Companys reserve account, in excess of the benefits charged, amounted to $17,888. Compute the following:

a. Hyram Companys 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 $