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Since the SUTA rates changes are made at the end of each year, the available 2019 rates were used for FUTA and SUTA. Note: For

Since the SUTA rates changes are made at the end of each year, the available 2019 rates were used for FUTA and SUTA.

Note: For this textbook edition the rate 0.6% was used for the net FUTA tax rate for employers.

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 2021:

Reserve RatioRate
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 over2.6%

For the three 12-month periods ending on June 30, 2020, 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, 2020, the credits to the employer's account exceeded the benefits paid by $6,800. Thus, the 2020 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 employer's 2021 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 2021 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 2021:

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

As of June 30, 2019 (the computation date for the 2020 tax rate), Amanda Company had a negative balance of $1,015 in its unemployment reserve account in State A. The company's average payroll over the last three 12-month periods amounted to $525,000. 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 RatioContribution 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 more3.1%

a). The smallest voluntary contribution that Amanda 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 Amanda Company's taxable payroll for 2020 is $650,000.

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