Fundamental Payroll Payroll Reporting and Compliance Questions and Answers — Questions and Answers
Question 1: An employer is determining its federal tax deposit schedule for calendar year 2026. The employer's total tax liability reported on its Forms 941 during the lookback period (July 1, 2024, to June 30, 2025) was $55,000. What is this employer's required deposit schedule for 2026?
- Annually, with Form 944
- Semi-weekly (Correct answer)
- Quarterly, with Form 941
- Monthly
Correct answer: Semi-weekly
The IRS determines an employer's deposit schedule based on the total taxes reported during a four-quarter lookback period. If the total tax liability during this period is more than $50,000, the employer is a semi-weekly depositor. Since $55,000 is over the threshold, the employer must follow the semi-weekly schedule.
Question 2: Which of the following statements best describes the purpose of Form W-3, Transmittal of Wage and Tax Statements?
- It is a summary form that totals all information from the individual Forms W-2 and is filed with the Social Security Administration. (Correct answer)
- It is provided to each employee, summarizing their annual wages and withholdings.
- It is used by employees to claim exemption from federal income tax withholding.
- It is filed by an employer to report quarterly federal tax liabilities.
Correct answer: It is a summary form that totals all information from the individual Forms W-2 and is filed with the Social Security Administration.
Form W-3 is a transmittal form that summarizes the total earnings, Social Security wages, Medicare wages, and withholdings for all employees as reported on their individual Forms W-2. It serves as a cover sheet when the employer sends Copy A of all employee Forms W-2 to the Social Security Administration (SSA).
Question 3: A monthly depositor is 10 days late in making a required federal payroll tax deposit. According to the IRS Failure to Deposit penalty structure, what is the penalty rate applied to the undeposited amount?
- 2%
- 10%
- 5% (Correct answer)
- 15%
Correct answer: 5%
The IRS applies a tiered penalty for late deposits. Deposits that are 6 to 15 calendar days late are subject to a 5% penalty. A 2% penalty applies for deposits 1 to 5 days late, and a 10% penalty applies for deposits more than 15 days late.
Question 4: An employer pays an independent contractor, who is a sole proprietor, $5,000 for services performed during the year. Which form must the employer file with the IRS and furnish to the contractor to report this payment?
- Form W-2
- Form 1099-MISC
- Form 941
- Form 1099-NEC (Correct answer)
Correct answer: Form 1099-NEC
Form 1099-NEC, Nonemployee Compensation, is used to report payments of $600 or more made to individuals who are not employees for services performed in the course of a trade or business. Form 1099-MISC is now used for other types of miscellaneous income, such as rents or royalties.
Question 5: How are State Unemployment Tax Act (SUTA) taxes predominantly funded?
- Equally by both employee and employer contributions.
- Primarily by employer contributions, though a few states also require employee contributions. (Correct answer)
- Entirely by the federal government through FUTA tax credits.
- By employee pre-tax payroll deductions only.
Correct answer: Primarily by employer contributions, though a few states also require employee contributions.
SUTA, which funds state unemployment benefits, is an employer-paid tax in the vast majority of states. Only a few states (Alaska, New Jersey, and Pennsylvania) also require employees to contribute.
Question 6: What is the standard quarterly deadline for an employer to file Form 941, Employer's QUARTERLY Federal Tax Return, assuming the due date does not fall on a weekend or holiday?
- The 15th day of the month following the end of the quarter.
- The 10th business day following the end of the quarter.
- The first day of the month following the end of the quarter.
- The last day of the month following the end of the quarter. (Correct answer)
Correct answer: The last day of the month following the end of the quarter.
Form 941 is due by the last day of the month that follows the end of the quarter. For example, for the first quarter (January-March), the deadline is April 30th. For the second quarter (April-June), it's July 31st, and so on.
