Chapter 4: Income Tax Withholding

a. Combine the bonus with the wages for the current payroll period

4. Trowbridge Company has just completed the processing of its year-end payroll and distributed all the weekly paychecks. The payroll department is now computing the amount of the annual bonus to be given to each worker. To determine the federal tax withholding, a. Combine the bonus with the wages for the current payroll period b. Withhold a flat 40% of the bonus payment c. Use the prior year's bonus withholding rate.

$378.55

5. Emma earns an annual salary of $84,400 and is paid biweekly. Her W-4 shows "Married with 1." What is her FIT withholding?

True

5. Employees receiving over $1 million in supplemental wages for the year will have a 39.6% withholding rate apply to the supplemental payments in excess of $1 million. .......................T/F

Subject to withholding Note: Sick pay is subject to withholding.

5. Employer-paid sick pay. Not subject to withholding or Subject to Withholding

(D) those requested in writing by the IRS

5. Employers must submit Forms W-4 to the IRS for: (A) all Forms W-4 (B) those claiming more than 10 allowances (C) all Forms W-4 claiming exemption (D) those requested in writing by the IRS (E) those requesting additional amounts to be withheld

When the employee has high-deductible health insurance.

5. In which of these situations are employer contributions into employees' health saving accounts excluded from the employees' taxable income?: 1. When the employee has high-deductible health insurance. 2. When the employee has Low-deductible health insurance.

True

5. Trowbridge Company has just completed the processing of its year-end payroll and distributed all the weekly paychecks. The payroll department is now computing the amount of the annual bonus to be given to each worker. To determine the federal tax withholding, the company may elect to combine the bonus with the wages for the current payroll period . True or False

True

6. Employees' payroll deductions into their 401(k) plans are generally made on a pretax basis and reduce the amount of gross pay that is subject to federal income tax withholding. ......................... T/F

c. Form 1096

6. Employers preparing information returns must file which of the following forms to transmit each type of information return: a. Form 1099-MISC b. A summary form 1099 c. Form 1096 d. Form 941

Subject to withholding. Note: Memberships in social or country clubs are taxable fringe benefits and are subject to withholding.

6. Memberships in the local country club for department managers. Not subject to withholding or Subject to Withholding

False

6. Percentage method distinguishes between married and unmarried persons, but this method does not provide the benefits of the allowances claimed by the employee on Form W-4, for the calculation of the federal income tax withholding. T/F

Deducted from, $4,000?

6. The personal allowance amount in __________ the employee's income in computing taxable income. In 2015, the amount of a personal allowance was $_________.

(C) taxed as though it were a regular payment for the periods occurring during the vacation period

6. The withholding on vacation wage payments is: (A) a flat 15% (B) based on the total amount of the wage payment plus the vacation pay (C) taxed as though it were a regular payment for the periods occurring during the vacation period (D) tax-free (E) a flat 25%.

True

7. A SIMPLE IRA is a retirement plan that may be established by employers, including self-employed individuals (sole proprietorships and partnerships). True/False

(C) Form 1099-MISC

7. A publisher is preparing information returns to report the royalties paid to authors (nonemployees) during the prior calendar year. The proper information return to be completed is: (A) Form W-2, (B) Form W-3 (C) Form 1099-MISC (D) Form 1099-DIV (E) any of the above forms.

False

7. A worker with three employers should claim at least one withholding allowance with each employer. .......T/F

Wage and Tax Statement

7. Form W-2 refers to:

Subject to withholding. Note: No-additional-cost meals provided to employees at an employer-operated eating establishment.

7. Meals provided by a local restaurant for its employees. Not subject to withholding or Subject to Withholding

$18,000 or 100%

7. The maximum per year deferred contributions that employees under the age of 50 can make into their 401(k) plans is lesser of $__________ or _____% of their pay.

False, the correct date On or before January 31.

8. Employers must give employees Form W-2 on or before March 31 following close of the calendar year. T/F

True

8. The SIMPLE IRA allows eligible employees to contribute part of their pretax compensation to the plan. This means the tax on the money is deferred until it is distributed. True/False

$125,00, 3%

8. The maximum contributions that an employer can make to an employee's SIMPLE account must match the employee's contribution up to a maximum of ____% of the employee's pay.

False - allowances is claimed on W-4

8. The number of withholding allowances claimed by an employee is set forth on Form W-2. .......... T/F

Percentage Method and Wage-Bracket Method. Note: Other Methods of withholding FIT is Supplemental Method

8. The two principal methods of Federal Income Tax (FIT) withholding are:

(D) W-4

8. Which of the following forms is not completed by the employer?: (A) W-2 (B) W-3 (C) Form 941 (D) W-4 (E) Form 1099-MISC

True

9. "Pre-tax" deductions reduce the gross earnings upon which the federal tax to be withheld is determined. True/False

(B) a table of allowances values is used

9. Both the percentage method and the wage-bracket method of withholding have each of the following characteristics except: (A) unmarried persons are distinguished from married persons (B) a table of allowances values is used (C) employees are given the full benefit of the allowances they claim (D) tables and wage-bracket charts are used to determine the amount withheld, (E) the standard deduction is taken into account.

True

9. The personal allowance amount is deducted from the employee's income in computing taxable income. In 2016, the amount of a personal allo wance was $4050. T/F

True

9. The three methods that can be used to compute the amount of the annual bonus by the employer to the employees are: 1.Percentage Method, 2.Wage Bracket Method, 3.Supplimental Method. True or False

Three weeks' vacation pay

9. Which of the following kinds of wage payments is non-exempted from the withholdings of federal income taxes?

True

9. Withholding allowance certificates must be retained by employers for as long as the certificates are in effect and for four years thereafter. ........ T/F.

False

1. A sole proprietor with two employees is exempt from the requirements of the federal income tax withholding law. T/F

Tips

1. All of the following are examples of Supplemental Wages except:

Not Subject to withholding Note: Meals provided to employees for the convenience of the employer on the employer's premises is Not Subject to withholding.

1. Company-provided lunches at the plant to reduce tardiness by keeping employees on the premises. Not subject to withholding or Subject to Withholding

d. None because the amount is over the limit

1. Orrin D'Amato, single, participates in his firm's pension retirement plan. This year, his modified adjusted gross income will be about $75,000. How much of his compensation may D'Amato contribute to an IRA this year without paying federal income taxes on the contribution? a. 15 percent b. 10 percent c. 20 percent d. None

True

1. Supplemental wage payments include items such as vacation pay, bonuses, commissions, exercised nonqualified stock options, and dismissal pay. T/F

Intended Payment -------------------------------- (1 - Applicable Tax Rate)

1. The formula used to "gross-up" supplemental payments in order to cover the taxes on the supplemental payments is:

(A) membership in a country club

1. Which of the following fringe benefits is taxable? (A) membership in a country club (B) use of on premise athletic facility, (C) job-placement assistance (D) qualified employee discounts, (E) reduced tuition for education.

False

10. An employee filed a Form W-4 and claimed 22 withholding allowances. The employer should withhold 25% of the worker's gross earnings for federal income taxes until the Form W-4 is approved by the IRS. ........... T/F

$20

10. Cash tips of _____ or more that are received in a calendar month, in the course of employment with a single employer, are treated as remuneration subject to income tax withholding.

if they had no taxability last year and this must be claimed on a new W-4 Fed. 15

10. Employees who are exempt from the withholding of federal income taxes are required to submit to their employer Form W-4 if:

(A) $742.39* ($500/(1-0.25-0.062 - 0.0145 = $742.39)

10. Wolf Company is giving a net bonus check of $500 to all of its employees. If each of the payments are subject to FIT (25% supplemental rate) and FICA taxes, but no state taxes, the gross amount of each bonus check would be: (A) $742.39 (B) $663.75 (C) $656.00 (D) $662.75 (E) none of these

True

11. Form 944 is used by employers who owe $1,000 or less in employment taxes for the year. It is filed once a year. T/F

It is the amount by which the fair market value of the fringe benefit exceeds what the fringe benefit exceeds what the employee paid, plus any amount the law excludes.

11. How is the amount of a fringe benefit that is taxable to an employee determined? It is the amount by which the fair market value of the fringe benefit exceeds what the fringe benefit exceeds what the employee paid, plus any amount the law excludes.

True

11. Unmarried persons are distinguished from married persons under both the percentage method and the wage-bracket method of withholding. ..................... T/F

Form 1096

12. Employers preparing information returns must file which of the following forms to transmit each type of information return? :

Each vacation week should be treated separately to calculate the tax.

12. If an employee is paid weekly and is paid for two weeks of vacation:

False - supplemental earning be combined with wage payment, not vacation. Vacation is treated as a separate payment and taxed separately.

12. Vacation pay is to be paid at the same time as a regular wage payment. In this case, the vacation pay must be combined with the regular wage payment and federal income taxes calculated on the amount of the total payment. .............. T/F

As if the totals were a single payment for a regular payroll period.

13. If vacation pay is paid in lieu of taking vacation time, the employer withholds:

False

13. In the IRA form of a simple retirement account, employers can contribute as much as they want into the employee's simple retirement account, even though the employee's contribution is limited to $12,500. .......... T/F

$250.00 for each form.

13. The penalty for filing W-2s with mismatched names and social security numbers is:

False

14. The Wage and Tax Statement must be furnished to an employee on or before February 28 following the close of the calendar year. .........T/F

Fines of up to $1000 or imprisonment for up to one year or both

14. The penalties imposed on employees for filing false information on Form W-4 are:

True

15. Employers need to submit only those W-4s that are requested in writing by the IRS: T/F

True

15. If an employee who left the company requests a W-2 before the end of the year, it must be furnished within 30 days of the request or the final wage payment (whichever is later) ................. T/F

False

16. The maximum contribution that an employee (age 40) can make into a 401(k) plan that is not taxed for federal income tax withholding purposes is $25,000. ................... T/F

True

17. Form W-3 is filed with the Social Security Administration by employers as a transmittal of the information contained on Forms W-2.......... T/F

False

18. Employers cannot send Forms W-2 to employees electronically. ................... T/F

False

19. To correct errors on previously filed Forms W-2, an employer must file Form W-3. ............. T/F

(C) a partner

2. All of the following persons are classified as employees under the federal income tax withholding law with the exception of: (A) a first-line supervisor (B) the president of a corporation (C) a partner (D) an elected official in the state government (E) an officer of the federal government

W-4P

2. Commencing in June, Alan Oldt is eligible to receive monthly payments from a pension fun. Oldt may elect to have no income tax withheld from his pension fun payments by indicating this on form _______.

False

2. Not-for-profit corporations that are exempt from federal income taxes do not withhold federal income taxes from their employees' pay. T/F

True

2. Supplemental wages can be paid along with regular wages or paid separately from regular wages. T/F

b. Employers

2. Which one of the following needs to submit only those W-4s that are requested in writing by the IRS? a. Employees b. Employers c. Payroll Vendors d. Newly established companies

Subject to withholding Note: Bonuses to managers and supervisors are considered compensation for services rendered as employees and are subject to withholding.

2. Year-end bonuses to managers and supervisors. Not subject to withholding or Subject to Withholding

True

20. Contributions made by the employer into employees' health savings accounts are excluded from the employees' taxable income ....................... T/F

False -reporting has to be in the same month as earned tip

3. Cash tips of $20 or more in a month must be reported to the employer by the tipped employee by the end of the following month. T/F

True

3. Employers need to submit only those W-4s that are requested in writing by the IRS. True or False

(B) start of the first payroll period ending on or after the 30th day from the W-4 receipt date

3. If an employee files an amended W-4, the employer must make the W-4 effective no later than the: (A) next payday (B) start of the first payroll period ending on or after the 30th day from the W-4 receipt date (C) 10th day from the W-4 receipt date (D) first pay in the next quarter, (E) first pay in the next year

True

3. The gross amount for supplemental wages is calculated by dividing the intended payment by the difference between 1 and the applicable tax rates. T/F

October 31.

3. The special period rule allows employers to use ________ as the cut off date for valuing non-cash fringe benefits.

Not Subject to withholding. Note: The use of on-site athletic facilities by employees is considered a nontaxable fringe benefit.

3. Work-out room for employee use during lunch hours. Not subject to withholding or Subject to Withholding

Form W-4

4. Employee who are exempt from the withholding of federal income taxes are required to submit to their employer __________ showing the exempt status.

True

4. Employees who regularly receive cash tips of $20 or more in a calendar month are subject to federal income tax withholding on the tips. T/F.

False

4. Percentage method does not distinguish between married and unmarried persons, but this method provides the full benefit of the allowances claimed by the employee on Form W-4, for the calculation of the federal income tax withholding. T/F

(E) take none of the above actions Employer should claim Single and Zero Allowance.

4. Ron Case, married with four dependents, failed to complete and file Form W-4 with his employer. The employer should: (A) withhold federal income taxes as if Case were single and claimed six allowances (B) withhold federal income taxes as if Case were married and claimed no Allowances (C) withhold federal income taxes at a rate of 25% of Case's wages (D) refuse to pay Case until his Form W-4 is filed (E) take none of the above actions.

Subject to withholding Note: Advances for business expenses reasonably expected to be incurred.

4. Travel advances to salespersons for overnight sales calls out of town. Not subject to withholding or Subject to Withholding