CPP Payroll Tax Compliance 5 — Questions and Answers
Question 1: Which of the following correctly describes backup withholding on payments reported on Form 1099?
- 24% must be withheld when a payee fails to provide a valid TIN or is flagged by the IRS (Correct answer)
- 28% is withheld on all 1099 payments to non-residents
- Backup withholding only applies to payments exceeding $10,000
- Backup withholding is optional and at the employer's discretion
Correct answer: 24% must be withheld when a payee fails to provide a valid TIN or is flagged by the IRS
Backup withholding at 24% is required when the payee does not furnish a correct TIN or the IRS notifies the payer that withholding is required.
Question 2: An employer pays a $10,000 bonus to an employee who has already received over $1 million in supplemental wages this year. What withholding rate applies to the bonus?
- 37% (Correct answer)
- 22%
- 25%
- The employee's regular wage withholding rate
Correct answer: 37%
Supplemental wages exceeding $1 million in a calendar year are subject to mandatory flat withholding at the 37% rate.
Question 3: Which of the following is a 'responsible person' who could be held liable for the Trust Fund Recovery Penalty?
- A bookkeeper who has authority to sign checks and direct tax payments (Correct answer)
- Any employee who receives a paycheck from the company
- An outside auditor who reviews the payroll records annually
- A shareholder with no operational role in the company
Correct answer: A bookkeeper who has authority to sign checks and direct tax payments
A responsible person is anyone with the authority and duty to collect and pay over trust fund taxes, which can include bookkeepers with check-signing authority.
Question 4: What is the maximum FUTA credit an employer can claim against the 6.0% gross FUTA rate when timely paying SUTA?
- 5.4% (Correct answer)
- 6.0%
- 3.0%
- 2.7%
Correct answer: 5.4%
Employers who pay their state unemployment taxes on time receive up to a 5.4% credit, reducing the effective net FUTA rate to 0.6%.
Question 5: How does the IRS define a 'payroll tax deposit shortfall' under the accuracy of deposits rule?
- A deposit that is less than 98% of the tax liability for the period (Correct answer)
- Any deposit made after the due date, regardless of amount
- A deposit less than 95% of the required amount
- An underpayment exceeding $500 in a single pay period
Correct answer: A deposit that is less than 98% of the tax liability for the period
The IRS considers a deposit a shortfall if it is less than 98% of the required deposit, but allows a safe harbor if the shortfall is made up by a specified makeup date.
Question 6: Which employees are generally exempt from FICA taxes?
- Nonresident alien students on F-1 visas working on-campus under their visa terms (Correct answer)
- Part-time employees working fewer than 20 hours per week
- Employees under age 18 in any industry
- Commissioned sales employees paid entirely by tips
Correct answer: Nonresident alien students on F-1 visas working on-campus under their visa terms
Nonresident alien students in F-1 status performing services allowed under their visa are exempt from FICA taxes under IRC Section 3121(b)(19).
Question 7: An employer that fails to file Form W-2s by the required deadline faces penalties based on:
- How late the forms are filed, with higher penalties for longer delays and intentional disregard (Correct answer)
- A flat $500 fee per employee regardless of the delay length
- Only the number of W-2s filed late, not the duration of delay
- Whether the employer is a large or small filer, with no time-based scaling
Correct answer: How late the forms are filed, with higher penalties for longer delays and intentional disregard
W-2 late filing penalties are tiered by how many days late the forms are, with the highest penalty tier applying to intentional disregard of the filing requirement.
CPP Payroll Tax Compliance 5
Which of the following correctly describes backup withholding on payments reported on Form 1099?