CPS Tax Planning & Compliance 3 — Questions and Answers
Question 1: Which of the following fringe benefits is excluded from federal income tax withholding?
- Cash bonuses
- Personal use of a company vehicle
- Group-term life insurance up to $50,000 (Correct answer)
- Gift cards valued at $50
Correct answer: Group-term life insurance up to $50,000
The cost of employer-provided group-term life insurance coverage up to $50,000 is excluded from the employee's gross income.
Question 2: The Additional Medicare Tax of 0.9% applies to wages exceeding which threshold for a single filer?
- $200,000 (Correct answer)
- $250,000
- $150,000
- $300,000
Correct answer: $200,000
Employers must withhold the 0.9% Additional Medicare Tax on wages paid to an employee in excess of $200,000 in a calendar year.
Question 3: A supplemental wage payment of $8,000 is made to an employee who has already received more than $1 million in supplemental wages this year. What withholding rate applies?
- 22% flat rate
- 37% mandatory flat rate (Correct answer)
- The employee's W-4 rate
- 27% aggregate rate
Correct answer: 37% mandatory flat rate
Supplemental wages exceeding $1 million in a calendar year are subject to mandatory withholding at the highest income tax rate of 37%.
Question 4: An employer pays $400 per month toward a qualified parking benefit for an employee. For 2024, the monthly exclusion limit is $315. How much is taxable?
- $0 — all employer-paid parking is excluded
- $85 per month is taxable wages (Correct answer)
- $400 per month is taxable wages
- $315 per month is taxable wages
Correct answer: $85 per month is taxable wages
Only the portion of employer-paid qualified parking exceeding the monthly exclusion limit ($315 in 2024) is included in the employee's taxable wages.
Question 5: Which IRS lookback period determines a 2024 employer's deposit schedule?
- January 1 – December 31, 2023
- July 1, 2022 – June 30, 2023 (Correct answer)
- October 1, 2022 – September 30, 2023
- April 1, 2022 – March 31, 2023
Correct answer: July 1, 2022 – June 30, 2023
The lookback period for 2024 is July 1, 2022 through June 30, 2023, covering the four quarters of that 12-month window.
Question 6: An employee repays $8,500 in wages originally paid in a prior year that were over-reported. How should the employer handle the tax correction?
- File Form W-2c and Form 941-X to correct the prior-year return (Correct answer)
- Adjust current-year payroll tax calculations only
- Issue a corrected W-2 for the current year
- No correction is needed since it is below $10,000
Correct answer: File Form W-2c and Form 941-X to correct the prior-year return
Prior-year wage over-payments require a corrected W-2c and an adjusted return on Form 941-X to correct both income and FICA taxes.
Question 7: Which federal tax law requires employers to withhold income taxes on wages paid to nonresident alien employees at a flat 30% unless a tax treaty applies?
- ERISA
- FUTA
- Chapter 3 withholding under the Internal Revenue Code (Correct answer)
- FICA
Correct answer: Chapter 3 withholding under the Internal Revenue Code
Chapter 3 of the Internal Revenue Code governs withholding on U.S.-source income paid to nonresident aliens, including wages, at a 30% default rate.
CPS Tax Planning & Compliance 3
Which of the following fringe benefits is excluded from federal income tax withholding?