Fundamental Payroll Employment Taxes and Withholding Questions and Answers — Questions and Answers
Question 1: An employer's total tax liability reported on their Forms 941 during the lookback period was $45,000. For the current calendar year, what is this employer's federal tax deposit schedule?
- Semi-weekly
- Monthly (Correct answer)
- Quarterly
- Annually
Correct answer: Monthly
According to IRS rules, an employer's deposit schedule is determined by the total taxes reported on Form 941 during a four-quarter lookback period. If the total tax liability is $50,000 or less, the employer is a monthly depositor. If it exceeds $50,000, they are a semi-weekly depositor. Since $45,000 is less than the threshold, the employer must deposit monthly.
Question 2: An employer provides a 42-year-old employee with a $150,000 group-term life insurance policy and pays the entire premium. Based on IRS regulations, what is the value of the coverage that is subject to FICA taxes?
- $50,000
- $100,000 (Correct answer)
- $150,000
- $42,000
Correct answer: $100,000
The IRS allows the cost of the first $50,000 of employer-provided group-term life insurance coverage to be excluded from an employee's income. The cost of coverage exceeding $50,000 is considered a taxable benefit and must be included in the employee's wages for tax purposes. Therefore, the taxable portion of the coverage is $100,000 ($150,000 total coverage - $50,000 exclusion).
Question 3: For the purpose of calculating FICA taxes, which of the two components has an annual wage base limit beyond which the tax is no longer withheld?
- Medicare, but not Social Security
- Both Social Security and Medicare
- Social Security, but not Medicare (Correct answer)
- Neither Social Security nor Medicare
Correct answer: Social Security, but not Medicare
The Federal Insurance Contributions Act (FICA) tax is composed of two parts: Social Security and Medicare. The Social Security component has an annual wage base limit that is adjusted for inflation each year. Once an employee's year-to-date earnings exceed this limit, Social Security tax is no longer withheld. The Medicare tax, however, has no wage base limit and is applied to all covered earnings.
Question 4: Which of the following pieces of information is reported and reconciled on Form 941, Employer's QUARTERLY Federal Tax Return?
- Total annual federal unemployment (FUTA) tax liabilities
- State unemployment insurance (SUI) contributions for the quarter
- W-2 data for all employees for the year
- Total quarterly wages paid and federal income, Social Security, and Medicare taxes withheld (Correct answer)
Correct answer: Total quarterly wages paid and federal income, Social Security, and Medicare taxes withheld
Form 941 is used by employers to report the total wages paid, federal income tax withheld, and both the employee and employer portions of Social Security and Medicare taxes for a calendar quarter. FUTA taxes are reported annually on Form 940, SUI is reported to the state, and W-2 data is submitted annually on Form W-3.
Question 5: An employer operates in a state that is not a credit reduction state and has paid all state unemployment taxes on time. The FUTA tax rate is 6.0% and the SUTA tax rate is 5.4%. What is the maximum credit the employer can claim against the FUTA tax, and what is the effective FUTA tax rate?
- 5.4% credit, resulting in a 0.6% effective rate (Correct answer)
- 6.0% credit, resulting in a 0.0% effective rate
- 0.6% credit, resulting in a 5.4% effective rate
- 2.7% credit, resulting in a 3.3% effective rate
Correct answer: 5.4% credit, resulting in a 0.6% effective rate
Employers who pay their state unemployment (SUTA) taxes in full and on time can receive a credit of up to 5.4% against their FUTA tax liability. This reduces the effective FUTA tax rate from the gross rate of 6.0% down to 0.6% (6.0% - 5.4% = 0.6%). This credit is available as long as the state is not a credit reduction state.
Question 6: What is the annual deadline by which employers must furnish Form W-2, Wage and Tax Statement, to their employees for the preceding calendar year?
- April 15
- February 28
- March 15
- January 31 (Correct answer)
Correct answer: January 31
Employers are required to provide employees with their Form W-2 by January 31 of the year following the calendar year of wages earned. This deadline also applies to filing the forms with the Social Security Administration. If January 31 falls on a weekend or holiday, the deadline moves to the next business day.
Fundamental Payroll Employment Taxes and Withholding Questions and Answers
An employer's total tax liability reported on their Forms 941 during the lookback period was $45,000.
For the current calendar year, what is this employer's federal tax deposit schedule?