CPP Payroll Tax Compliance — Questions and Answers
Question 1: What is the current Social Security tax rate for employees in the United States?
- 6.2% on wages up to the annual wage base limit (Correct answer)
- 12.4% on all wages with no limit
- 3.1% on the first $50,000 of wages
- 15.3% on all earned income
Correct answer: 6.2% on wages up to the annual wage base limit
Employees pay 6.2% of their wages in Social Security tax up to the annual wage base limit ($168,600 in 2024), with employers matching the same amount.
Question 2: What is Form W-4 used for?
- For employees to indicate their federal tax withholding preferences to their employer (Correct answer)
- To report annual wages and taxes to employees
- To register a new business with the IRS
- To file quarterly payroll tax returns
Correct answer: For employees to indicate their federal tax withholding preferences to their employer
Form W-4 (Employee's Withholding Certificate) tells employers how much federal income tax to withhold from employee paychecks based on filing status, dependents, and other adjustments.
Question 3: What is the FICA tax and what does it fund?
- Federal Insurance Contributions Act tax funding Social Security and Medicare (Correct answer)
- Federal Income Collection and Assessment tax
- A state-level unemployment insurance tax
- A voluntary retirement savings contribution
Correct answer: Federal Insurance Contributions Act tax funding Social Security and Medicare
FICA consists of Social Security tax (6.2%) and Medicare tax (1.45%) paid by both employees and employers, funding the federal Social Security and Medicare programs.
Question 4: When is the employer required to deposit payroll taxes with the IRS?
- On a semi-weekly or monthly schedule based on the employer's total tax liability (Correct answer)
- Annually when filing the year-end tax return
- Only when the IRS sends a notice requesting payment
- Whenever the employer finds it convenient
Correct answer: On a semi-weekly or monthly schedule based on the employer's total tax liability
Employers must deposit payroll taxes on either a semi-weekly or monthly schedule, determined by the employer's lookback period tax liability, with penalties for late deposits.
Question 5: What is the Additional Medicare Tax?
- An additional 0.9% tax on wages exceeding $200,000 for single filers, paid only by the employee (Correct answer)
- A 2% tax on all wages paid by the employer
- A voluntary contribution to Medicare by high earners
- A tax that only applies to self-employed individuals
Correct answer: An additional 0.9% tax on wages exceeding $200,000 for single filers, paid only by the employee
The Additional Medicare Tax of 0.9% applies to employee wages exceeding $200,000 (single), $250,000 (married filing jointly), with no employer match.
Question 6: What is Form 941?
- The Employer's Quarterly Federal Tax Return reporting wages, tips, and payroll taxes (Correct answer)
- An employee's annual wage statement
- A state unemployment tax return
- A new hire reporting form
Correct answer: The Employer's Quarterly Federal Tax Return reporting wages, tips, and payroll taxes
Form 941 is filed quarterly by employers to report total wages paid, federal income tax withheld, and both employee and employer shares of Social Security and Medicare taxes.
CPP Payroll Tax Compliance
What is the current Social Security tax rate for employees in the United States?