CSLB Contractor's Law & Business Practice Exam

Who is responsible for paying FUTA tax?

1. Employer after $10,000 wages

2. Employee

3. Employer until $7,000 taxable wages

4. Contractor

The correct answer is: Employer until $7,000 taxable wages

The correct answer highlights the requirements around the Federal Unemployment Tax Act (FUTA) tax, which is a tax levied on employers to fund unemployment benefits. Employers are responsible for paying FUTA tax on the first $7,000 of wages earned by each employee. This tax essentially acts as a safety net for workers who become unemployed, providing funds to support the unemployment insurance system. In this context, the reference to $10,000 wages in another choice is incorrect since the FUTA tax liability applies only up to $7,000 per employee. Additionally, while employees do contribute to Social Security and Medicare taxes, they are not responsible for paying FUTA tax, which specifically falls on the employer. The mention of the contractor does not directly pertain to who pays FUTA tax, as the responsibility lies with the employer, regardless of their classification as a contractor or another business entity. Thus, the responsibilities under FUTA clearly dictate that the employer takes on the tax liability until the specified wage limit is reached.