Fundamental Payroll Certification Fundamental Payroll Involuntary and Voluntary Deductions 4 — Questions and Answers
Question 1: Which IRS form is served on an employer to levy an employee's wages for unpaid federal taxes?
- Form W-4
- Form 668-W (Correct answer)
- Form 941
- Form 1099-MISC
Correct answer: Form 668-W
IRS Form 668-W (Notice of Levy on Wages, Salary, and Other Income) is the instrument served on employers to collect delinquent federal taxes from employee earnings.
Question 2: Which IRS publication does an employer consult to determine the exempt amount shielded from a federal tax levy?
- Publication 15 (Employer's Tax Guide)
- Publication 1494 (Tables for Figuring Amount Exempt from Levy) (Correct answer)
- Publication 505 (Tax Withholding)
- Publication 4681 (Canceled Debts)
Correct answer: Publication 1494 (Tables for Figuring Amount Exempt from Levy)
IRS Publication 1494 provides tables based on the employee's filing status and pay period to calculate the exempt amount that remains protected from the levy.
Question 3: Federal Administrative Wage Garnishment (AWG) for defaulted student loans is capped at what maximum percentage of disposable pay?
- 10%
- 15% (Correct answer)
- 20%
- 25%
Correct answer: 15%
Under the Higher Education Act, AWG for defaulted federal student loans cannot exceed 15% of the employee's disposable pay per pay period.
Question 4: Under a Chapter 13 bankruptcy wage assignment order, the employer is required to:
- Stop all garnishments immediately upon receiving notice
- Withhold the court-specified amount and remit it to the bankruptcy trustee (Correct answer)
- Increase the employee's net pay by eliminating voluntary deductions
- Contact the IRS before processing any plan payments
Correct answer: Withhold the court-specified amount and remit it to the bankruptcy trustee
A Chapter 13 wage earner plan directs the employer to withhold the specified plan payment amount from wages and forward it to the bankruptcy trustee for distribution to creditors.
Question 5: Which statement about an IRS federal tax levy on wages is TRUE?
- It is limited to 25% of disposable earnings under the CCPA
- It takes priority over all child support orders regardless of when each was established
- It remains in effect until the employer receives an IRS levy release (Correct answer)
- It automatically expires after 180 days if unpaid
Correct answer: It remains in effect until the employer receives an IRS levy release
A federal tax levy continues until the IRS issues a release (Form 668-D) or the liability is fully satisfied; employers must keep withholding until that release is received.
Question 6: When a federal tax levy and a state tax levy are received simultaneously for the same employee, which generally takes priority?
- State levy, because the state is the primary taxing authority
- Federal levy, because federal law supersedes state law (Correct answer)
- Whichever levy was issued first controls
- Child support always supersedes both levies
Correct answer: Federal levy, because federal law supersedes state law
Under the federal supremacy clause, federal tax levies generally take precedence over state tax levies when both are presented at the same time.
Question 7: When an employee files for bankruptcy and an automatic stay is granted, which type of payroll deduction must the employer CONTINUE withholding?
- Creditor garnishments that predate the filing
- Federal tax levies already in place
- Child support and other domestic support obligations (Correct answer)
- State tax levies issued prior to the filing
Correct answer: Child support and other domestic support obligations
The Bankruptcy Code explicitly exempts domestic support obligations like child support from the automatic stay, so employers must continue withholding those amounts.
Fundamental Payroll Certification Fundamental Payroll Involuntary and Voluntary Deductions 4
Which IRS form is served on an employer to levy an employee's wages for unpaid federal taxes?