ABA Payroll Processing & Compliance 2 — Questions and Answers
Question 1: An employee claims exempt from federal income tax withholding on their W-4. Under what condition is this allowed?
- They had no tax liability last year and expect none this year (Correct answer)
- They earn less than $10,000 annually
- They are a part-time employee working under 20 hours per week
- They have filed an extension with the IRS
Correct answer: They had no tax liability last year and expect none this year
Exempt status is valid only when the employee had zero federal tax liability in the prior year and expects none in the current year.
Question 2: Which IRS form must employers use to deposit federal payroll taxes electronically?
- Form 941
- Form W-3
- EFTPS (Correct answer)
- Form 944
Correct answer: EFTPS
The Electronic Federal Tax Payment System (EFTPS) is the required method for electronically depositing federal payroll taxes.
Question 3: A semi-weekly depositor's payroll falls on Wednesday. By which day must the federal payroll tax deposit be made?
- The following Monday
- The following Friday (Correct answer)
- The same Wednesday
- The following Wednesday
Correct answer: The following Friday
For semi-weekly depositors, payrolls paid Wednesday through Friday must be deposited by the following Friday.
Question 4: Which of the following fringe benefits is generally excluded from an employee's gross income for federal income tax purposes?
- Cash bonuses
- Group-term life insurance up to $50,000 (Correct answer)
- Personal use of a company vehicle
- Gifts exceeding $25
Correct answer: Group-term life insurance up to $50,000
Employer-provided group-term life insurance coverage up to $50,000 is excluded from an employee's gross income under IRC Section 79.
Question 5: Under the FLSA, what is the maximum tip credit an employer may claim against the federal minimum wage for tipped employees in 2024?
- $2.13 per hour (Correct answer)
- $3.00 per hour
- $5.12 per hour
- $7.25 per hour
Correct answer: $2.13 per hour
The federal tip credit maximum is $5.12, reducing the cash wage floor to $2.13 per hour, which has remained unchanged since 1991.
Question 6: An employee earns $200,000 in wages. Which payroll tax requires the employer to withhold an Additional 0.9% from this employee?
- Social Security tax
- Medicare tax (Correct answer)
- FUTA
- SUTA
Correct answer: Medicare tax
The Additional Medicare Tax of 0.9% applies to wages exceeding $200,000 (single filers) and is withheld only by the employer, with no employer match.
Question 7: Which document must an employer provide to each employee by January 31 showing prior-year wages and tax withholdings?
- Form 1099-NEC
- Form W-2 (Correct answer)
- Form W-4
- Form 941
Correct answer: Form W-2
Employers must furnish Form W-2 (Wage and Tax Statement) to each employee by January 31 of the following year.
ABA Payroll Processing & Compliance 2
An employee claims exempt from federal income tax withholding on their W-4.
Under what condition is this allowed?