APA Taxation and Compliance 2

Question 1

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

Accepted Answer

Through February 15 of the following year

Answer

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?

Accepted Answer

Form 1099-NEC

Answer

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?

Accepted Answer

6.0%

Answer

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?

Accepted Answer

Employers pay a higher net FUTA tax rate

Answer

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?

Accepted Answer

Flat rate method

Answer

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

(APA) American Payroll Association Certification Practice Test