APA Taxation and Compliance 2 — Questions and Answers
Question 1: An employee claims exempt from federal income tax withholding on Form W-4. How long is this exemption valid?
- Indefinitely until revoked
- Through February 15 of the following year (Correct answer)
- Through December 31 of the current year
- For 90 days from submission
Correct 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.
Question 2: Which IRS form is used to report non-employee compensation of $600 or more paid to independent contractors?
- Form 1099-INT
- Form 1099-MISC
- Form 1099-NEC (Correct answer)
- Form 1096
Correct 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.
Question 3: Under the FUTA tax rules, what is the standard FUTA tax rate before any state credit is applied?
- 0.6%
- 3.0%
- 6.0% (Correct answer)
- 6.2%
Correct 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%.
Question 4: A state is designated a FUTA credit reduction state. What is the effect on employers in that state?
- Employers receive an additional tax credit
- Employers pay a higher net FUTA tax rate (Correct answer)
- Employers are exempt from FUTA deposits
- State unemployment taxes are eliminated
Correct 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.
Question 5: Which withholding method uses a flat supplemental rate of 22% for federal income tax on supplemental wages under $1 million?
- Aggregate method
- Annualized method
- Percentage method
- Flat rate method (Correct answer)
Correct 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.
Question 6: What is the Medicare surtax rate imposed on wages exceeding $200,000 for single filers under the Additional Medicare Tax?
- 0.9% (Correct answer)
- 1.45%
- 2.35%
- 3.8%
Correct 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.
Question 7: For FICA tax purposes, which of the following payments to an employee is generally exempt from both Social Security and Medicare taxes?
- Overtime pay
- Commissions
- Reimbursements under an accountable plan (Correct answer)
- Bonuses
Correct answer: Reimbursements under an accountable plan
Reimbursements paid under an accountable plan are not considered wages and are excluded from FICA taxation.
APA Taxation and Compliance 2
An employee claims exempt from federal income tax withholding on Form W-4.
How long is this exemption valid?