Taxation and Compliance Flashcards

An employee claims exempt from federal income tax withholding on Form W-4. How long is this exemption valid?

Answer: Through February 15 of the following year

A W-4 claiming exempt status expires on February 15 of the year following the year it was submitted.

Which IRS form is used to report non-employee compensation of $600 or more paid to independent contractors?

Answer: Form 1099-NEC

Form 1099-NEC (Nonemployee Compensation) is used to report payments of $600 or more to independent contractors starting with tax year 2020.

Under the FUTA tax rules, what is the standard FUTA tax rate before any state credit is applied?

Answer: 6.0%

The gross FUTA tax rate is 6.0% on the first $7,000 of wages; employers in compliant states receive a 5.4% credit, resulting in a net rate of 0.6%.

A state is designated a FUTA credit reduction state. What is the effect on employers in that state?

Answer: Employers pay a higher net FUTA tax rate

In credit reduction states, the normal 5.4% FUTA credit is reduced, resulting in employers paying a higher net FUTA tax rate.

Which withholding method uses a flat supplemental rate of 22% for federal income tax on supplemental wages under $1 million?

Answer: Flat rate method

The flat rate (or optional flat rate) method applies a flat 22% federal income tax withholding rate to supplemental wages not exceeding $1 million.

What is the Medicare surtax rate imposed on wages exceeding $200,000 for single filers under the Additional Medicare Tax?

Answer: 0.9%

The Additional Medicare Tax is 0.9% on wages above $200,000 (single) or $250,000 (married filing jointly), withheld by the employer.

For FICA tax purposes, which of the following payments to an employee is generally exempt from both Social Security and Medicare taxes?

Answer: Reimbursements under an accountable plan

Reimbursements paid under an accountable plan are not considered wages and are excluded from FICA taxation.