Fundamental Payroll Certification Fundamental Payroll Payroll Reporting and Compliance 5 — Questions and Answers
Question 1: What is the primary purpose of Form 944 (Employer's Annual Federal Tax Return)?
- To report FUTA taxes annually
- To allow very small employers to file and pay employment taxes once per year instead of quarterly (Correct answer)
- To report wages for employees with annual earnings under $600
- To reconcile year-end W-2 totals with quarterly 941 filings
Correct answer: To allow very small employers to file and pay employment taxes once per year instead of quarterly
Form 944 allows small employers with annual employment tax liability of $1,000 or less to file and pay once a year rather than quarterly.
Question 2: Which of the following payments is exempt from FUTA tax?
- Regular wages paid to a full-time employee
- Severance pay
- Wages paid to a spouse employed in the business (Correct answer)
- Tips reported by employees
Correct answer: Wages paid to a spouse employed in the business
Wages paid by an individual to their spouse are exempt from FUTA tax under IRC Section 3306(c)(5).
Question 3: Under the Consumer Credit Protection Act (CCPA), what is the maximum amount that may be garnished from an employee's disposable earnings for ordinary debt (not child support)?
- 10% of disposable earnings
- 15% of disposable earnings
- The lesser of 25% of disposable earnings or the amount by which earnings exceed 30 times the federal minimum hourly wage (Correct answer)
- 50% of disposable earnings
Correct answer: The lesser of 25% of disposable earnings or the amount by which earnings exceed 30 times the federal minimum hourly wage
For ordinary debt, the CCPA limits garnishment to the lesser of 25% of disposable earnings or the amount exceeding 30 times the federal minimum wage per week.
Question 4: Which of the following best describes the 'trust fund' portion of payroll taxes?
- The employer's matching share of FICA taxes
- Employee federal income tax withheld and the employee share of FICA taxes (Correct answer)
- FUTA taxes collected from wages
- All taxes remitted via EFTPS
Correct answer: Employee federal income tax withheld and the employee share of FICA taxes
Trust fund taxes are amounts withheld from employee wages — federal income tax and the employee share of Social Security and Medicare — which the employer holds in trust for the government.
Question 5: When must an employer provide Form W-2 to employees?
- By December 31 of the tax year
- By January 31 of the following year (Correct answer)
- By February 15 of the following year
- By March 31 of the following year
Correct answer: By January 31 of the following year
Employers must furnish Form W-2 to employees by January 31 of the year following the tax year in which wages were paid.
Question 6: What IRS notice triggers the requirement for an employer to begin withholding an employee's student loan levies?
- CP2100 notice
- IRS Form 668-W (Correct answer)
- CP503 notice
- IRS Form 12153
Correct answer: IRS Form 668-W
IRS Form 668-W (Notice of Levy on Wages, Salary, and Other Income) is the document that instructs an employer to begin withholding wages for an IRS tax levy.
Question 7: A multistate employer must withhold state income tax based on which state's rules when an employee lives in one state but works in another?
- Always the state where the employee lives
- Always the state where the employer is incorporated
- Generally the state where the work is performed, subject to reciprocity agreements (Correct answer)
- The state with the lower tax rate
Correct answer: Generally the state where the work is performed, subject to reciprocity agreements
State income tax withholding is generally required in the state where services are performed, but reciprocity agreements between states may allow withholding in the employee's resident state instead.
Fundamental Payroll Certification Fundamental Payroll Payroll Reporting and Compliance 5
What is the primary purpose of Form 944 (Employer's Annual Federal Tax Return)?