Fundamental Payroll Employment Taxes and Withholding 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?

Accepted Answer

Monthly

Answer

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?

Accepted Answer

$100,000

Answer

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?

Accepted Answer

Social Security, but not Medicare

Answer

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?

Accepted Answer

Total quarterly wages paid and federal income, Social Security, and Medicare taxes withheld

Answer

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?

Accepted Answer

5.4% credit, resulting in a 0.6% effective rate

Answer

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.

Fundamental Payroll Certification Practice Test

Fundamental Payroll Certification Practice Test

Fundamental Payroll Employment Taxes and Withholding Questions and Answers