ABA Payroll Processing & Compliance 3 — Questions and Answers
Question 1: An employer misclassifies a worker as an independent contractor when they should be an employee. Under Section 3509, what is the reduced withholding rate for federal income tax if the employer did NOT intentionally disregard withholding rules?
- 1.5% (Correct answer)
- 3%
- 5%
- 7.65%
Correct answer: 1.5%
Under IRC Section 3509, unintentional misclassification results in a reduced federal income tax withholding rate of 1.5% of wages.
Question 2: What is the lookback period used to determine an employer's payroll tax deposit schedule for 2024?
- July 1, 2021 – June 30, 2022
- July 1, 2022 – June 30, 2023 (Correct answer)
- January 1, 2023 – December 31, 2023
- October 1, 2022 – September 30, 2023
Correct answer: July 1, 2022 – June 30, 2023
The lookback period for 2024 is July 1, 2022, through June 30, 2023; total taxes reported during this period determine monthly or semi-weekly status.
Question 3: Which payroll register column would an accountant reference to verify that the correct amount of child support was garnished from an employee's paycheck?
- Gross earnings
- Voluntary deductions
- Involuntary deductions (Correct answer)
- Net pay
Correct answer: Involuntary deductions
Court-ordered child support garnishments are classified as involuntary deductions in the payroll register.
Question 4: Under ERISA, a 401(k) participant deferral withheld from an employee's paycheck must generally be remitted to the plan within how many business days for small plans?
- 3 business days
- 7 business days (Correct answer)
- 15 business days
- 30 business days
Correct answer: 7 business days
For small plans (fewer than 100 participants), the DOL safe harbor allows remittance within 7 business days after withholding.
Question 5: Which state-level payroll tax funds California's paid family leave and state disability insurance programs?
- FUTA
- SUTA
- SDI (State Disability Insurance) (Correct answer)
- SUI
Correct answer: SDI (State Disability Insurance)
California's SDI tax, withheld from employee wages, funds both the State Disability Insurance and Paid Family Leave programs administered by the EDD.
Question 6: An employee's gross pay is $3,000 and their Section 125 cafeteria plan deduction is $400. What is the correct FICA taxable wage base for this pay period?
- $3,400
- $3,000
- $2,600 (Correct answer)
- $400
Correct answer: $2,600
Section 125 cafeteria plan deductions reduce the FICA wage base, so FICA applies to $3,000 − $400 = $2,600.
Question 7: Which IRS notice program notifies employers that an employee's Social Security Number does not match SSA records, historically requiring corrective action?
- CP2100 Notice
- No-Match Letter (Correct answer)
- Form 8655
- CP220 Notice
Correct answer: No-Match Letter
The SSA No-Match Letter (historically) and IRS CP2100 notice both alert employers to TIN/SSN discrepancies, with the No-Match Letter specifically from SSA.
ABA Payroll Processing & Compliance 3
An employer misclassifies a worker as an independent contractor when they should be an employee.
Under Section 3509, what is the reduced withholding rate for federal income tax if the employer did NOT intentionally disregard withholding rules?