CPS Payroll Compliance & Reporting 2 — Questions and Answers
Question 1: An employer fails to deposit payroll taxes by the required due date. Which IRS penalty structure applies for deposits that are 1 to 5 days late?
- 2% of the unpaid tax (Correct answer)
- 5% of the unpaid tax
- 10% of the unpaid tax
- 15% of the unpaid tax
Correct answer: 2% of the unpaid tax
The IRS assesses a 2% failure-to-deposit penalty for employment tax deposits that are 1 to 5 days late.
Question 2: Which form must employers use to reconcile annual Social Security and Medicare wages reported on Forms W-2 with quarterly 941 filings?
- Form W-3 (Correct answer)
- Form 945
- Form 944
- Form 1096
Correct answer: Form W-3
Form W-3 is the transmittal that summarizes all W-2 wages and tax amounts, allowing reconciliation against quarterly 941 totals.
Question 3: A company hires a contractor and pays them $650 during the year. What is the 1099-NEC filing requirement?
- No 1099-NEC is required because the amount is below $600 (Correct answer)
- A 1099-NEC must be filed because any payment triggers reporting
- A 1099-NEC is required only if the contractor requests one
- A 1099-NEC must be filed if payment exceeds $500
Correct answer: No 1099-NEC is required because the amount is below $600
The 1099-NEC threshold is $600; payments below that amount do not require a 1099-NEC filing.
Question 4: Under the FLSA, which record must employers retain for at least three years?
- Payroll records including hours worked and wages paid (Correct answer)
- I-9 employment eligibility verification forms
- New hire reporting records submitted to the state
- Garnishment orders received from courts
Correct answer: Payroll records including hours worked and wages paid
The FLSA requires employers to keep payroll records such as time cards and wage payment records for a minimum of three years.
Question 5: Which IRS deposit schedule applies to an employer whose total tax liability in the lookback period was $50,000 or less?
- Monthly depositor (Correct answer)
- Semi-weekly depositor
- Next-day depositor
- Annual depositor
Correct answer: Monthly depositor
Employers with $50,000 or less in employment tax liability during the lookback period are classified as monthly depositors.
Question 6: State unemployment tax (SUTA) rates are experience-rated. What does 'experience rating' mean in this context?
- Rates are based on the employer's history of former employees claiming unemployment benefits (Correct answer)
- Rates are based on how long the employer has been in business
- Rates are set uniformly by the state regardless of claim history
- Rates are determined by the employer's industry type only
Correct answer: Rates are based on the employer's history of former employees claiming unemployment benefits
Experience rating means an employer's SUTA rate reflects its own history of unemployment claims filed by former employees.
Question 7: Which section of the Internal Revenue Code imposes the trust fund recovery penalty (TFRP) on responsible persons who willfully fail to remit withheld payroll taxes?
- Section 6672 (Correct answer)
- Section 3121
- Section 3401
- Section 6656
Correct answer: Section 6672
IRC Section 6672 allows the IRS to assess a trust fund recovery penalty equal to 100% of the unpaid trust fund taxes against responsible persons.
CPS Payroll Compliance & Reporting 2
An employer fails to deposit payroll taxes by the required due date.
Which IRS penalty structure applies for deposits that are 1 to 5 days late?