AFTR AFTR Tax Withholding and Estimated Taxes 2 — Questions and Answers
Question 1: Which taxpayers are generally required to make estimated tax payments?
- Anyone who files a federal return
- Taxpayers who expect to owe at least $1,000 in tax after subtracting withholding and credits (Correct answer)
- Taxpayers with self-employment income only
- Taxpayers whose AGI exceeds $100,000
Correct answer: Taxpayers who expect to owe at least $1,000 in tax after subtracting withholding and credits
Individuals must generally make estimated tax payments if they expect to owe at least $1,000 in tax after withholding and refundable credits.
Question 2: A retiree receiving pension income with no withholding should:
- File only at year-end and pay any balance due
- Submit Form W-4P to request voluntary withholding from the pension (Correct answer)
- Request a filing extension automatically
- Use Form 941 to remit withholding monthly
Correct answer: Submit Form W-4P to request voluntary withholding from the pension
Form W-4P allows pension and annuity recipients to elect voluntary federal income tax withholding from their periodic payments.
Question 3: Self-employed individuals pay self-employment tax in lieu of which taxes normally withheld by an employer?
- Federal income tax and FUTA
- Social Security and Medicare taxes (FICA) (Correct answer)
- State income tax and FUTA
- Federal income tax only
Correct answer: Social Security and Medicare taxes (FICA)
Self-employment tax covers the employee and employer shares of Social Security and Medicare (FICA) taxes, which would otherwise be split and withheld by an employer.
Question 4: What is the self-employment tax rate applied to net self-employment earnings (up to the Social Security wage base)?
- 7.65%
- 12.4%
- 15.3% (Correct answer)
- 13.3%
Correct answer: 15.3%
The self-employment tax rate is 15.3%, consisting of 12.4% for Social Security and 2.9% for Medicare, applied to 92.35% of net self-employment income.
Question 5: If the IRS determines a worker is misclassified as an independent contractor rather than an employee, which party bears primary liability for unpaid payroll taxes?
- The worker alone
- The employer (business) (Correct answer)
- The IRS absorbs the loss
- Liability is split equally between worker and employer
Correct answer: The employer (business)
When workers are misclassified, the employer is primarily liable for the employee share of FICA taxes that should have been withheld, plus the employer share.
Question 6: Backup withholding at the rate of 24% is required when:
- A taxpayer requests it on Form W-4
- A payee fails to provide a correct TIN or the IRS notifies the payer (Correct answer)
- Investment income exceeds $10,000
- A nonresident alien receives U.S. income
Correct answer: A payee fails to provide a correct TIN or the IRS notifies the payer
Backup withholding at 24% applies when a payee does not furnish a correct taxpayer identification number or receives an IRS B-notice indicating an incorrect TIN.
AFTR AFTR Tax Withholding and Estimated Taxes 2
Which taxpayers are generally required to make estimated tax payments?