CPS Payroll Administration & Taxation 2 — Questions and Answers
Question 1: An employee claims exempt from federal income tax withholding on Form W-4. Under what condition is this allowable?
- They had no tax liability last year and expect none this year (Correct answer)
- They earn less than $15,000 annually
- They are a part-time employee working fewer than 20 hours per week
- They are over age 65
Correct answer: They had no tax liability last year and expect none this year
Exempt status on W-4 is valid only when the employee had zero federal tax liability the prior year and anticipates none in the current year.
Question 2: Which IRS publication provides the income tax withholding tables used in the percentage method for federal withholding calculations?
- Publication 15-T (Correct answer)
- Publication 15-A
- Publication 505
- Publication 501
Correct answer: Publication 15-T
IRS Publication 15-T contains the federal income tax withholding tables including the percentage method tables.
Question 3: A tipped employee earns $2.13/hour in direct wages but tips bring total hourly earnings to $6.00. The federal minimum wage is $7.25. What must the employer do?
- Make up the $1.25 difference so total equals minimum wage (Correct answer)
- Pay an additional $5.12 to reach full minimum wage without tip credit
- Nothing, since $6.00 exceeds $2.13
- File a tip credit waiver with the Department of Labor
Correct answer: Make up the $1.25 difference so total equals minimum wage
When tips plus the direct wage fall short of federal minimum wage, the employer must make up the difference.
Question 4: What is the lookback period used to determine an employer's federal payroll tax deposit schedule for 2026?
- July 1, 2024 through June 30, 2025 (Correct answer)
- January 1, 2025 through December 31, 2025
- October 1, 2024 through September 30, 2025
- July 1, 2025 through June 30, 2026
Correct answer: July 1, 2024 through June 30, 2025
The lookback period for a given year runs from July 1 of two years prior through June 30 of the prior year.
Question 5: Which form must employers file annually to reconcile total wages paid, taxes withheld, and deposits made for the year?
- Form W-3 (Correct answer)
- Form 940
- Form 941
- Form 944
Correct answer: Form W-3
Form W-3 is the transmittal form that summarizes all W-2s and reconciles annual wages and withholding totals.
Question 6: Under the FUTA tax rules, which of the following payments is EXEMPT from FUTA tax?
- Payments to a spouse employed in the business by a sole proprietor (Correct answer)
- Overtime premiums paid to hourly workers
- Shift differential pay
- Retroactive pay adjustments
Correct answer: Payments to a spouse employed in the business by a sole proprietor
Wages paid by a sole proprietor to their spouse are specifically exempt from FUTA tax.
Question 7: An employee's regular rate of pay for overtime purposes under the FLSA must include which of the following?
- Non-discretionary bonuses (Correct answer)
- Gifts for special occasions
- Discretionary bonuses
- Expense reimbursements under an accountable plan
Correct answer: Non-discretionary bonuses
Non-discretionary bonuses must be included in the regular rate of pay when calculating overtime under the FLSA.
CPS Payroll Administration & Taxation 2
An employee claims exempt from federal income tax withholding on Form W-4.
Under what condition is this allowable?