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Federal & State Tax Withholding Flashcards

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Read the first 7 Federal & State Tax Withholding flashcards as text

  1. An employee claims 'Exempt' on their W-4. Under what condition is this status valid?

    Answer: The employee had no federal income tax liability last year and expects none this year

    Exempt status on a W-4 is valid only if the employee had zero federal income tax liability in the prior year and expects zero liability in the current year.

  2. Which IRS publication provides the income tax withholding tables used by employers?

    Answer: Publication 15 (Circular E)

    IRS Publication 15 (Employer's Tax Guide, also known as Circular E) contains the withholding tables and instructions employers use to determine federal income tax withholding.

  3. A supplemental wage payment of $1.5 million is made to an employee. How is withholding applied to the amount exceeding $1 million?

    Answer: 37% flat rate on the excess over $1 million

    For supplemental wages exceeding $1 million in a calendar year, the excess over $1 million is mandatorily withheld at the highest marginal rate (37%).

  4. What is the purpose of IRS Form W-4P?

    Answer: Withholding certificate for pension or annuity payments

    Form W-4P is used by recipients of pensions, annuities, and other deferred compensation to direct payers on how much federal income tax to withhold.

  5. Under the aggregate method for supplemental wages, how is withholding calculated?

    Answer: Add the supplemental and regular wages together and withhold as if it were one payment

    The aggregate method combines supplemental and regular wages to determine the total withholding, then subtracts the tax already withheld on regular wages.

  6. A new employee fails to submit a W-4. What withholding rate must the employer apply?

    Answer: Single filing status with no adjustments (as if the employee checked 'Single' with no other entries)

    IRS regulations require employers to withhold at the Single rate with no adjustments when an employee fails to furnish a valid W-4.

  7. Which state approach requires employers to withhold state income tax even when employees claim exempt on their federal W-4?

    Answer: States that require a separate state withholding certificate

    Many states require their own withholding certificates and may not honor federal exempt claims, so employers must comply with each state's separate withholding rules.