When should employers stop depositing FUTA tax on an employee's wages during the calendar year?

The correct choice is based on the threshold established for the Federal Unemployment Tax Act (FUTA). Employers must stop depositing FUTA tax once they reach the first $7,000 of an employee's wages during a calendar year. This $7,000 limit is the wage base limit for FUTA. Once an employee's earnings exceed this threshold in a calendar year, the employer is not required to pay any additional FUTA tax on wages paid to that employee for the remainder of that year.

It's important to understand that because FUTA is designed to provide unemployment benefits, the wage base limit helps to keep the tax manageable for employers, while still supporting the system's funding needs. If an employee earns below this limit, the future wages will continue to incur FUTA tax, but once that threshold is crossed, further deposits for that employee for the year are unnecessary.

Understanding this limit is crucial for employers to ensure compliance and efficient payroll tax management. The other figures, like $1,000, $1,500, and the notion of having no limit, misrepresent the specific boundaries set by the IRS for FUTA taxation.