CPS Tax Planning & Compliance 2

Question 1

An employee claims exempt from federal income tax withholding on their W-4. Under what condition is this allowable?

Accepted Answer

The employee had no federal income tax liability last year and expects none this year

Answer

Exempt status is valid only when the employee had zero federal income tax liability the prior year and anticipates zero liability in the current year.

Question 2

Which IRS form must an employer use to report an employee's annual wages and tax withholdings?

Accepted Answer

Form W-2

Answer

Form W-2, Wage and Tax Statement, is issued by employers to employees and the IRS to report annual wages and withheld taxes.

Question 3

A company pays an independent contractor $650 during the tax year. What is the employer's reporting obligation?

Accepted Answer

No reporting required since the payment is below the $600 threshold

Answer

Form 1099-NEC is required only when a contractor is paid $600 or more in a tax year; $650 exceeds the threshold and must be reported.

Question 4

What is the FUTA tax rate after applying the maximum credit for state unemployment taxes paid on time?

Accepted Answer

0.6%

Answer

The gross FUTA rate is 6.0%, but employers who pay state unemployment taxes timely receive a 5.4% credit, leaving a net rate of 0.6%.

Question 5

For 2024, the Social Security wage base is $168,600. An employee has already earned $170,000 from a prior employer. Their new employer should:

Accepted Answer

Not withhold Social Security tax since the annual wage base is already exceeded

Answer

Once an employee's total wages from all employers exceed the Social Security wage base, no additional Social Security withholding is required from the new employer.

(CPS) Certified Payroll Specialist Practice Test

(CPS) Certified Payroll Specialist Practice Test

CPS Tax Planning & Compliance 2