Certified Payroll Professional Practice Exam

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What does the FUTA tax credit depend on?

Earnings of the employee
Number of employees
State unemployment program payments
Individual tax rate

The correct answer is: State unemployment program payments

The FUTA tax credit, also known as the Federal Unemployment Tax Act credit, depends on the state unemployment program payments. This means that the amount of credit a business can claim is based on the amount of state unemployment taxes paid by the employer. Options A, B, and D may seem related to employment taxes, but they are not directly tied to the FUTA tax credit. For example, a business may have high employee earnings or a large number of employees, but if their state has low unemployment rates and thus lower unemployment program payments, their FUTA tax credit may be lower. Individual tax rates also do not impact the FUTA tax credit. It is only dependent on the state unemployment program payments. Therefore, option C is the most accurate and relevant choice.