CPB / BookKeeping Payroll and Tax Reporting 5 — Questions and Answers
Question 1: Which payroll journal entry correctly records the employer's share of FICA taxes?
- Debit Payroll Tax Expense; Credit FICA Taxes Payable (Correct answer)
- Debit Wages Expense; Credit FICA Taxes Payable
- Debit FICA Taxes Payable; Credit Payroll Tax Expense
- Debit Cash; Credit Payroll Tax Expense
Correct answer: Debit Payroll Tax Expense; Credit FICA Taxes Payable
The employer's share of FICA is recorded as a debit to Payroll Tax Expense and a credit to FICA Taxes Payable until remitted.
Question 2: What is the maximum penalty rate for failure to deposit payroll taxes when the failure exceeds 15 days past the due date?
- 2%
- 5%
- 10% (Correct answer)
- 15%
Correct answer: 10%
The IRS imposes a 10% penalty on payroll tax deposits that are more than 15 days late (or unpaid amounts remaining after an IRS notice).
Question 3: A bookkeeper discovers that $200 in Social Security taxes was under-withheld from an employee in Q1. Which form is used to correct this error?
- Form W-2c
- Form 941-X (Correct answer)
- Form 1040-X
- Form 843
Correct answer: Form 941-X
Form 941-X is the amended quarterly payroll tax return used to correct errors in previously filed Form 941s, including under-withheld FICA.
Question 4: Under the constructive receipt doctrine, when is a paycheck mailed on December 31 includible in the employee's taxable income?
- When the check clears the bank
- In the year it is mailed (current year)
- In the year it is actually received and cashed (Correct answer)
- It depends on the employee's accounting method
Correct answer: In the year it is actually received and cashed
Under constructive receipt, income is taxable when it is made available; a mailed check is not available until received, so it is taxable in the year received.
Question 5: An employer operates in a state with a 5.4% SUTA rate on the first $7,000 of wages. What is the net FUTA tax per employee for the year?
- $42.00 (Correct answer)
- $378.00
- $420.00
- $0.00
Correct answer: $42.00
Net FUTA = 0.6% × $7,000 = $42.00 per employee, because the full 5.4% SUTA credit reduces the gross 6.0% FUTA rate to 0.6%.
Question 6: Which IRS notice triggers the employer's obligation to begin a wage garnishment for an employee's federal tax debt?
- CP2000
- CP14
- IRS Form 668-W (Correct answer)
- IRS Letter 3172
Correct answer: IRS Form 668-W
IRS Form 668-W (Notice of Levy on Wages, Salary, and Other Income) is the notice employers receive requiring them to withhold and remit portions of employee wages.
Question 7: For purposes of computing FUTA taxes, which payment is EXCLUDED from the FUTA taxable wage base?
- Vacation pay
- Overtime pay
- Group-term life insurance premiums over $50,000
- Employer contributions to a qualified pension plan (Correct answer)
Correct answer: Employer contributions to a qualified pension plan
Employer contributions to qualified pension and profit-sharing plans are excluded from the FUTA wage base as they are not considered wages.
CPB / BookKeeping Payroll and Tax Reporting 5
Which payroll journal entry correctly records the employer's share of FICA taxes?