ADP Tax Reporting and Filing 3 — Questions and Answers
Question 1: What is backup withholding and when does it apply to payroll?
- A 24% federal tax withheld when a payee fails to provide a correct TIN or the IRS notifies the payer to withhold (Correct answer)
- An additional withholding elected by the employee on Form W-4
- State-mandated withholding for supplemental wages above $1 million
- Withholding applied to employees who claim exempt status
Correct answer: A 24% federal tax withheld when a payee fails to provide a correct TIN or the IRS notifies the payer to withhold
Backup withholding at 24% applies when a payee fails to furnish a correct Taxpayer Identification Number or when the IRS issues a B-Notice requiring withholding.
Question 2: Which ADP report is used to verify that the correct amount of federal income tax was withheld across all employees for the quarter?
- Payroll Tax Liability Report (Correct answer)
- Employee Earnings Summary
- Benefits Deduction Summary
- Labor Cost Analysis Report
Correct answer: Payroll Tax Liability Report
The Payroll Tax Liability Report in ADP summarizes all federal, state, and local tax withholdings and employer tax liabilities by period, enabling quarterly verification.
Question 3: What is the purpose of IRS Form 8922 in the context of third-party sick pay?
- To reconcile third-party sick pay wages and taxes that were reported under the employer's or insurer's EIN rather than the other party's EIN (Correct answer)
- To report non-taxable sick pay benefits paid by the employer
- To claim a credit for employer-paid FMLA leave
- To document COBRA premium subsidies
Correct answer: To reconcile third-party sick pay wages and taxes that were reported under the employer's or insurer's EIN rather than the other party's EIN
Form 8922 reconciles third-party sick pay amounts and taxes when the employer and third-party payer split reporting responsibilities across different EINs.
Question 4: In ADP, what triggers a new state tax registration requirement when a company expands to a new state?
- Hiring an employee who works in or is a resident of a new state (Correct answer)
- Opening a bank account in a new state
- Signing a commercial lease in a new state
- Registering a trademark in a new state
Correct answer: Hiring an employee who works in or is a resident of a new state
Payroll nexus is typically created when an employer has an employee working in or residing in a state, requiring registration for state income and unemployment tax withholding.
Question 5: What is the Electronic Federal Tax Payment System (EFTPS) and how does it relate to ADP?
- A U.S. Treasury system for making federal tax deposits electronically; ADP uses it to deposit taxes on behalf of clients enrolled in its tax filing service (Correct answer)
- An ADP-proprietary payment portal for all payroll tax filings
- A system used only by large employers to file quarterly returns
- An optional system for submitting year-end W-2 data
Correct answer: A U.S. Treasury system for making federal tax deposits electronically; ADP uses it to deposit taxes on behalf of clients enrolled in its tax filing service
EFTPS is the IRS's official electronic tax payment system, and ADP SmartCompliance uses it to make timely federal tax deposits on behalf of client employers.
Question 6: What action must a payroll specialist take in ADP when an employee claims exempt from federal income tax withholding on their W-4?
- Set the employee's federal withholding to exempt in ADP and note that a new W-4 must be submitted by February 15 each year to maintain exempt status (Correct answer)
- Continue withholding at the employee's prior rate until verified by HR
- Automatically increase state tax withholding to compensate
- Flag the employee for an IRS audit notification
Correct answer: Set the employee's federal withholding to exempt in ADP and note that a new W-4 must be submitted by February 15 each year to maintain exempt status
Exempt status must be entered in ADP's W-4 configuration, and the IRS requires employees to submit a new W-4 by February 15 annually to renew exempt status.
ADP Tax Reporting and Filing 3
What is backup withholding and when does it apply to payroll?