Tax Preparation Tax Withholding and Estimated Taxes 1 — Questions and Answers
Question 1: Which IRS form do employees complete to instruct their employer on how much federal income tax to withhold from each paycheck?
- Form W-2
- Form W-4 (Correct answer)
- Form 1040-ES
- Form 941
Correct answer: Form W-4
Form W-4, the Employee's Withholding Certificate, tells employers how much federal income tax to withhold based on the employee's filing status and any adjustments.
Question 2: For calendar year taxpayers, when is the first quarterly estimated tax payment due?
- January 15
- April 15 (Correct answer)
- June 15
- September 15
Correct answer: April 15
The first quarterly estimated tax payment for the calendar year is due April 15, coinciding with the regular individual income tax filing deadline.
Question 3: Under the IRS safe harbor rule, a taxpayer can avoid an underpayment penalty by paying at least what percentage of the current year's tax liability?
- 75%
- 80%
- 90% (Correct answer)
- 95%
Correct answer: 90%
Taxpayers can avoid the underpayment penalty by paying at least 90% of the current year's tax liability, or 100% of the prior year's tax, whichever is smaller.
Question 4: Who is generally required to make quarterly estimated tax payments to the IRS?
- All W-2 employees regardless of withholding
- Individuals who expect to owe at least $1,000 after withholding and credits (Correct answer)
- Anyone who filed a federal tax return last year
- Taxpayers with gross income exceeding $100,000
Correct answer: Individuals who expect to owe at least $1,000 after withholding and credits
Individuals who expect to owe at least $1,000 in federal taxes after subtracting withholding and refundable credits must generally make quarterly estimated payments.
Question 5: Which IRS form is used to calculate and submit quarterly estimated tax payments?
- Form W-4
- Form 1099-ES
- Form 1040-ES (Correct answer)
- Form 2210
Correct answer: Form 1040-ES
Form 1040-ES, Estimated Tax for Individuals, is the form used to calculate the estimated tax owed and to submit quarterly payments to the IRS.
Question 6: How is the IRS underpayment penalty calculated?
- A flat $500 fee per quarter
- The federal short-term interest rate plus 3 percentage points on the underpaid amount (Correct answer)
- 10% of the total underpaid amount for the year
- The taxpayer's marginal tax rate applied to the underpaid balance
Correct answer: The federal short-term interest rate plus 3 percentage points on the underpaid amount
The underpayment penalty is computed using the federal short-term interest rate plus 3 percentage points, applied to the underpaid amount for each quarter the payment was late or insufficient.
Question 7: When is the fourth (final) quarterly estimated tax payment due for calendar year taxpayers?
- October 15
- November 15
- December 31
- January 15 (Correct answer)
Correct answer: January 15
The fourth quarterly estimated tax payment is due January 15 of the following year, unless the taxpayer files their complete return and pays all tax owed by February 1.
Tax Preparation Tax Withholding and Estimated Taxes 1
Which IRS form do employees complete to instruct their employer on how much federal income tax to withhold from each paycheck?