Fundamental Payroll Certification Fundamental Payroll Payroll Reporting and Compliance 4 — Questions and Answers
Question 1: An employer incorrectly classified a worker as an independent contractor. Under Section 530 relief, what must the employer demonstrate?
- That the worker signed an independent contractor agreement
- A reasonable basis, substantive consistency, and reporting consistency (Correct answer)
- That the worker filed a Schedule C
- That the worker earned less than $600
Correct answer: A reasonable basis, substantive consistency, and reporting consistency
Section 530 relief requires the employer to show a reasonable basis for the classification, substantive consistency in treating similar workers, and reporting consistency in filing information returns.
Question 2: Which form is used to report wages paid to a deceased employee's estate in the year following the employee's death?
- Form W-2 only
- Form 1099-MISC only (Correct answer)
- Both Form W-2 and Form 1099-MISC
- Form 1099-NEC only
Correct answer: Form 1099-MISC only
Wages paid to a deceased employee's estate in the year after death are reported on Form 1099-MISC (not W-2) because they are not subject to income tax withholding.
Question 3: What is the filing deadline for submitting Copy A of Form W-2 to the Social Security Administration when filing electronically?
- January 31 (Correct answer)
- February 28
- March 31
- April 15
Correct answer: January 31
The deadline for submitting W-2 Copy A to the SSA is January 31, regardless of whether you file on paper or electronically.
Question 4: Which of the following correctly describes the 'catch-up' FICA deposit rule for large employers?
- Employers may deposit on a quarterly basis if cumulative liability is under $2,500
- If total undeposited liability is under $100, it may be carried over to the next period (Correct answer)
- Employers with $1,000+ undeposited liability must deposit the next banking day
- Monthly depositors with under $500 liability may pay with the return
Correct answer: If total undeposited liability is under $100, it may be carried over to the next period
The de minimis rule allows employers to carry over undeposited tax of less than $100 to the next period rather than making a deposit.
Question 5: Which statement about backup withholding is correct?
- It applies to employees who have not submitted a W-4
- It applies to payees who have not provided a correct TIN on Form W-9, at a rate of 24% (Correct answer)
- It applies only to non-resident aliens
- It is imposed at the same rate as the federal supplemental withholding rate
Correct answer: It applies to payees who have not provided a correct TIN on Form W-9, at a rate of 24%
Backup withholding at 24% is required when a payee fails to provide a correct taxpayer identification number (TIN) on Form W-9.
Question 6: Under IRS rules, how long must payroll records generally be retained?
- 2 years from the date records were created
- 4 years after the due date of the related tax (Correct answer)
- 7 years after the tax period
- Indefinitely
Correct answer: 4 years after the due date of the related tax
IRS regulations require employers to retain payroll records for at least 4 years after the due date of the related tax or the date the tax was paid, whichever is later.
Question 7: An employer pays a bonus of $5,000 using the supplemental wage flat rate method. What amount of federal income tax must be withheld?
- $1,100
- $1,200 (Correct answer)
- $1,650
- $1,750
Correct answer: $1,200
The supplemental wage flat withholding rate is 22%, so $5,000 × 22% = $1,100; however the correct current flat rate is 22%, yielding $1,100.
Fundamental Payroll Certification Fundamental Payroll Payroll Reporting and Compliance 4
An employer incorrectly classified a worker as an independent contractor.
Under Section 530 relief, what must the employer demonstrate?