CPS Payroll Compliance & Reporting 3 — Questions and Answers
Question 1: An employee claims exempt status on their Form W-4. Under IRS rules, how long is a W-4 claiming exemption from withholding valid?
- Until February 15 of the following year (Correct answer)
- Until December 31 of the current year
- Indefinitely until the employee submits a new W-4
- Until the employee's income exceeds the standard deduction
Correct answer: Until February 15 of the following year
A W-4 claiming exempt status expires on February 15 of the year following submission, requiring the employee to file a new form to maintain exempt status.
Question 2: For federal income tax withholding purposes, supplemental wages paid separately from regular wages may be withheld at a flat rate. What is the current optional flat rate for supplemental wages up to $1 million?
- 22% (Correct answer)
- 25%
- 28%
- 37%
Correct answer: 22%
The IRS optional flat withholding rate for supplemental wages (such as bonuses) paid separately is 22%.
Question 3: Which agency administers the Federal Unemployment Tax Act (FUTA) and oversees the federal-state unemployment compensation system?
- Department of Labor (DOL) (Correct answer)
- Internal Revenue Service (IRS)
- Social Security Administration (SSA)
- Department of Treasury
Correct answer: Department of Labor (DOL)
The U.S. Department of Labor administers the federal-state unemployment compensation system, while FUTA tax is collected by the IRS.
Question 4: A non-exempt employee works 46 hours in a workweek and earns $18/hour. What is their gross pay for that week under FLSA?
- $828.00
- $882.00 (Correct answer)
- $918.00
- $864.00
Correct answer: $882.00
Regular pay: 40 × $18 = $720; overtime pay: 6 × $27 = $162; total = $882.
Question 5: Which IRS form is used to report non-employee compensation (e.g., freelancer payments) starting with tax year 2020?
- Form 1099-NEC (Correct answer)
- Form 1099-MISC
- Form W-9
- Form 1096
Correct answer: Form 1099-NEC
Starting with tax year 2020, the IRS reintroduced Form 1099-NEC specifically for reporting non-employee compensation of $600 or more.
Question 6: An employer is subject to backup withholding because a vendor provided an incorrect TIN. What is the backup withholding rate?
- 24% (Correct answer)
- 28%
- 22%
- 20%
Correct answer: 24%
The backup withholding rate is 24% and applies when a payee fails to provide a correct TIN or is notified by the IRS of underreported income.
Question 7: Under the Affordable Care Act (ACA), what does the employer shared responsibility provision (ESRP) require of Applicable Large Employers (ALEs)?
- Offer minimum essential coverage to full-time employees or potentially face a penalty (Correct answer)
- Provide health reimbursement accounts to all employees
- Report employee benefit costs on Form W-2 only if coverage exceeds $10,000
- Pay 50% of employee premium costs as a tax credit
Correct answer: Offer minimum essential coverage to full-time employees or potentially face a penalty
ALEs (50+ full-time equivalent employees) must offer affordable minimum essential coverage to full-time employees or face an employer shared responsibility payment.
CPS Payroll Compliance & Reporting 3
An employee claims exempt status on their Form W-4.
Under IRS rules, how long is a W-4 claiming exemption from withholding valid?