CPP Payroll Tax Compliance 3 — Questions and Answers
Question 1: A new employee fails to submit a Form W-4. What withholding status must the employer use?
- Single with no adjustments (highest withholding) (Correct answer)
- Married filing jointly with standard deduction
- Exempt from withholding
- The same status as the prior employee in that role
Correct answer: Single with no adjustments (highest withholding)
Per IRS rules, if an employee does not submit a W-4, the employer must withhold at the single rate with no adjustments.
Question 2: Which of the following correctly describes the trust fund recovery penalty (TFRP)?
- It holds responsible persons personally liable for unpaid employee withholding taxes (Correct answer)
- It applies only to corporate officers with signing authority
- It penalizes only the employer entity, not individuals
- It is limited to 50% of the unpaid tax amount
Correct answer: It holds responsible persons personally liable for unpaid employee withholding taxes
The TFRP allows the IRS to hold any 'responsible person' personally liable for 100% of unpaid trust fund taxes (withheld income and employee FICA).
Question 3: State unemployment insurance (SUTA) taxes are generally paid by:
- Employers only (Correct answer)
- Employees only
- Both employers and employees equally
- The federal government on behalf of employers
Correct answer: Employers only
In most states, SUTA is an employer-only tax; employees are not assessed state unemployment insurance contributions.
Question 4: What is the IRS de minimis rule as it applies to supplemental wage withholding?
- Employers who paid less than $1 million in supplemental wages in the prior year withhold at 22% (Correct answer)
- Bonuses under $50 are exempt from withholding entirely
- Supplemental wages under $500 are taxed at 37%
- Any fringe benefit valued under $25 is exempt from FICA
Correct answer: Employers who paid less than $1 million in supplemental wages in the prior year withhold at 22%
The flat supplemental wage withholding rate of 22% applies when the employer paid the employee less than $1 million in supplemental wages during the calendar year.
Question 5: Which form does an employer use to make federal tax deposits electronically through the Electronic Federal Tax Payment System (EFTPS)?
- No paper form — payments are made electronically via EFTPS (Correct answer)
- Form 8109-B
- Form 941-V
- Form 1040-ES
Correct answer: No paper form — payments are made electronically via EFTPS
Since 2011, all federal tax deposits must be made electronically through EFTPS; paper Federal Tax Deposit coupons (Form 8109) are no longer accepted.
Question 6: An employer discovered it over-withheld federal income tax from an employee. What is the correct procedure?
- Repay the employee and reduce the next deposit by the same amount (Correct answer)
- File an amended Form W-2 only at year-end
- Request a refund directly from the IRS on behalf of the employee
- Do nothing — over-withholding is corrected on the employee's personal return only
Correct answer: Repay the employee and reduce the next deposit by the same amount
Employers may repay the employee the excess withholding and then reduce their next federal tax deposit by that same amount per IRS correction rules.
Question 7: For Form 941 semi-weekly depositors, payroll paid on Wednesday through Friday must be deposited by:
- The following Wednesday (Correct answer)
- The following Friday
- The next banking day
- The 15th of the following month
Correct answer: The following Wednesday
Under the semi-weekly deposit rule, taxes on wages paid Wednesday–Friday are due by the following Wednesday.
CPP Payroll Tax Compliance 3
A new employee fails to submit a Form W-4.
What withholding status must the employer use?