Taxes

An employer has 20 employees in a state that does not have a FUTA credit reduction. The three top managers of the firm earn $10,000, $7,500, and $5,000 per month. Its ten engineers are paid $3,000 per month. The remaining employees, all support staff, are paid $1,400 per month. Calculate its FUTA deposit for the first quarter. $_______________

The employer's first-quarter FUTA deposit is $722.40. Note that 13 of its 20 employees will earn over $7,000 in the first three months. Calculate the firm's first-quarter FUTA deposit as follows: FUTA Taxable Wages 13 x $7,000.00 = $91,000.00 7 x $1,400.00 x 3 months = $29,400.00 $120,400.00 x 0.6% = $722.40

Which form is used to report taxes on agricultural employees' wages? ❑ a. Form 941 ❑ b. Form 943 ❑ c. Form 944 ❑ d. Form 945

b. Report total taxes on agricultural employees on Form 943.

An employer is required to file a Form W-2 in all of the following situations EXCEPT: ❑a. A part-time employee in shipping who claimed exempt from withholding on his Form W-4 ❑b. A free-lance writer who was paid $5,200.00 to prepare ad copy for the employer ❑c. A salesperson who retired in May ❑d. A student who is exempt from social security tax

b. Send W-2s to all employees, current or not, who received wages (even if you didn't withhold taxes). Report earnings of independent contractors, such as the freelance writer, on Form 1099- MISC.

By when is the company in Question 6 required to make its rst quarter FUTA deposit? a. April 15 b. April 30 c. May 30 d. It may be carried forward and deposited with the second quarter payment.

b. The first quarter deadline is April 30. If the amount (plus any amount not yet deposited for any earlier quarter of the year) is more than $500, deposit it no later than the last day of the first month after the quarter.

If filed on its due date, Form 941 must be sent to the IRS through the U.S. Postal Service. ❑ True ❑ False

False. Tax returns can also be sent using a "private delivery service."

All employees must receive notice of the Earned Income Credit required by the IRS. ❑ True ❑ False

False. Only employees meeting the IRS eligibility requirement must receive notice of the EIC. However, some states require all employees to be noti ed of the EIC.

An employer's tax deposit status always remains the same for the entire year. ❑ True ❑ False

False. A monthly depositor with a liability in excess of $100,000 in a deposit period becomes a semiweekly depositor.

Form 941 is filed monthly. ❑ True ❑ False

False. Form 941 is filed quarterly.

Between paydays, an employer must issue a off-cycle check to a terminating employee. The employer can hold the tax liability until the next regular payday to make the tax deposit. ❑ True ❑ False

False. The IRS requires semiweekly depositors to deposit the tax liability at the end of each deposit period.

No new staff are added until the fourth quarter, when the employer in Question 6 hires an office manager on December 1 at a monthly salary of $2,000. One of its engineers, with the firm for over 10 years, retires on November 30. On December 31, the employer learns that its FUTA credit is reduced by .3%. What is its fourth-quarter deposit? $_________________

Its fourth-quarter FUTA deposit is $618.60. The FUTA credit is now 5.1% (reduced by .3%). So the employer's effective rate is now 0.9% (6.0% - 5.1% = 0.9%). To calculate their January deposit, recalculate their tax liability at the new rate, subtract for deposits they have already made, and add amounts due for unpaid balances or the fourth quarter. Note: The retirement has no effect on their final deposit since they already covered this employee's wages in the first quarter. FUTA Taxable Wages 1Q $120,400.00 2Q $26,600.00 3Q $0.00 4Q $2,000.00 $149,000.00 X 0.9% = $1,341.00 Less year-to-date deposits - 722.40 ($722.40 from the first quarter) Final deposit - $618.60 (due Jan 31st)

At the beginning of the second quarter, the employer in Question 6 hires an additional engineer at a monthly salary of $3,300. What is its second-quarter FUTA liability? $________________

Its second-quarter FUTA liability is $159.60, calculated as follows. 1 x $7,000.00 = $7,000.00 7 x $1,400.00 x 2 months = $19,600.00 $26,600.00 x 0.6% = $159.60 Note: Thirteen employees had wages in excess of $7,000 in the rst quarter. Seven employees had wages of $4,200 each in the rst quarter. Since the liability is less than $500 no deposit is required.

A semiweekly depositor has accumulated a liability of $95,000 on Friday. On Saturday, it accumulates a $10,000 liability. Does the one-day rule apply? ❑ a. Yes ❑ b. No

No. For purposes of the $100,000 rule, do not continue to accumulate employment tax liability after the end of the semiweekly deposit period. The company's deposit period ended on Friday.

Employers in a state with a credit reduction will pay FUTA taxes at a rate different from 0.6%. ❑ True ❑ False

True. Employers in credit reduction states will have their FUTA credit reduced by 0.3% for each year they are in credit reduction status.

What is EFTPS? ❑a. Electronic Federal Tax Payment System ❑b. Electric Federal Tax Purchase System ❑c. Everyone's Federal Tax Payment System ❑d. Electronic Federal Tax Payment Services

a

If the employer's total tax liability for the quarter is less than $2,500, when must the taxes be paid? ❑a. By the due date of Form 941 ❑b. By the 15th of the month after the withholding ❑c. By Wednesday or Friday under the semiweekly rules ❑d. By the next business day

a. A quarterly depositor has a total tax liability for the quarter that is less than or equal to $2,500.

Under what circumstances could an employer be required to make daily deposits? ❑a. If their accumulated tax liability is $100,000 or more ❑b. If their accumulated tax deposits are $100,000 or more ❑c. This is not required by the law.

a. Deposits are due on the rst banking day after accumulating $100,000 of more in federal income tax, social security tax, and Medicare tax withheld from employees' wages and the employer's portion of social security tax and Medicare tax.

The payroll department made a series of errors on 100 of the 350 Forms W-2 sent to the Social Security Administration electronically. Shortly after filing, they realized their errors and corrected the returns by April 15. What is the penalty for these mistakes? ❑ a. $2,700.00 ❑ b. $3,000.00 ❑ c. $6,000.00 ❑ d. $10,000.00

a. Each time you fail to put correct information on a Form W-2 or 1099 led electronically, you may be assessed a $30 penalty per form (if corrected by April 30), a $60 penalty per form (if cor- rected between May 1 and August 1), or a $100 penalty per form (if corrected after August 1). 100 mistakes x $30 = $3,000. In addition, since the returns were filed timely the de minimis (10) amount will not be penalized so only 90 returns will be penalized at $30 (90 x $30 = $2,700.00).

A company ling Form 941 can pay employment taxes quarterly if its accumulated tax liability for the quarter is less than $2,500: ❑a. for the entire quarter. ❑b. at the end of the month. ❑c. at the end of the semiweekly period. ❑d. during the lookback period.

a. If an employer accumulates less than $2,500 tax liability during one quarter, taxes may be deposited or paid with the tax return for the quarter.

What is the FUTA tax rate that most employers pay? ❑ a. 0.6% ❑ b. 5.4% ❑ c. 6.0% ❑ d. 7.65%

a. Most employers are able to take a 5.4% credit for the state unemployment taxes paid for an effective rate of 0.6% (6.0% - 5.4%).

A company with an employment tax liability of $150,000 for the quarter les quarterly returns. Which form should the company use to report federal income tax withholding? ❑ a. Form 941 ❑ b. Form 943 ❑ c. Form 944 ❑ d. Form 945

a. Report total taxes withheld from wages, tips, and other compensation on Form 941.

Under what circumstances could certain of officers or employees of a corporation become personally liable for payment of taxes under federal law? ❑a. For failure to withhold and/or pay federal income tax, social security tax, and Medicare tax ❑b. For filing fraudulent information returns ❑c. For depositing taxes late ❑d. For filing incorrect information returns

a. The 100% penalty can apply when federal income tax, social security tax, and Medicare tax are not withheld and/or paid. Under this penalty, certain of officers of the firm could be found personally responsible for payment of the taxes and penalized an equal amount.

Which form is used by an employer to report federal income tax, social security tax and Medicare tax withheld? ❑ a. Form 941 ❑ b. Form 943 ❑ c. Form 944 ❑ d. Form 945

a. The employer must withhold federal income tax, social security tax and Medicare tax from employees wages and report it on Form 941.

An employer's accumulated employment taxes were $53,000.00 in federal income tax, $27,868.41 in social security tax, and $7,771.00 in Medicare tax. On the due date, they deposited $80,000.00 through EFTPS. Five days later, they deposited an additional $8,639.41. What is the penalty, if any, for this action? ❑ a. $137.33 ❑ b. $172.79 ❑ c. $186.00 ❑ d. No penalty

a. The employer was required to deposit 98% of their accumulated tax liability of $88,639.41, or $86,866.62 . They underdeposited by $6,866.62. The penalty is 2% of the underpayment since they deposited the correct amount within ve days. So, the penalty would be $137.33 (2% x $6,866.62).

A company is a semiweekly depositor. On its weekly Friday pay- day, it has a deposit liability of $50,000.00. When must the company deposit its payroll taxes? ❑a. By the following Wednesday. ❑b. By the following Friday. ❑c. By the following Monday. ❑d. By the 15th of the following month.

a. Under the semiweekly rule, tax liabilities on payments made on Wednesday, Thursday, and/or Friday must be deposited by the following Wednesday. Tax liabilities on payments made on Saturday, Sunday, Monday, and/or Tuesday must be deposited by the following Friday.

All of the following are methods to use when making EFTPS deposits EXCEPT: ❑ a.ACH Credit. ❑ b. Checks and Form 941. ❑ c. ACH Debit. ❑ d.Electronic Tax Application.

b

What is the FUTA wage base in 2015? ❑ a. $5,000.00 ❑ b. $7,000.00 ❑ c. $113,700.00 ❑ d. $117,000.00

b

If the employer's total tax liability for the lookback period is $48,000, when must a tax liability of less than $100,000.00 be deposited? ❑a. By the due date of Form 941 ❑b. By the 15th of the month after the withholding ❑c. By Wednesday or Friday under the semiweekly rules ❑d. By the next banking day

b. A monthly depositor had a tax liability of $50,000 or less during the lookback period and deposits employer taxes by the 15th of the next month.

A company is a semiweekly depositor. Its next deposit is due on Wednesday, which falls on a federal holiday. To be considered timely, the company's deposit of federal payroll taxes must be made on or before the close of business on: ❑ a. Tuesday. ❑ b. Thursday. ❑ c. Monday. ❑ d. Friday.

b. Because Wednesday is a holiday, the company has until Thursday to deposit its payroll taxes.

Your firm made a mistake in reporting an employee's taxable wages on his Form W-2. Which form is used to correct this error? ❑ a. W-2 ❑ b. W-2c ❑ c. W-3 ❑ d. W-3c

b. Correct the error on Form W-2c; transmit the corrected form to the SSA with Form W-3c.

Generally, the filing deadline for Form W-3 is: ❑a. January 31. ❑b. the last day in February. ❑ c. April 15. ❑d. the last day of the month following the end of each quarter.

b. Form W-3 is used to transmit Copy A of Form W-2 to the Social Security Administration. Its deadline is the same as the deadline for Form W-2 Copy A.

Which form is used to quarterly report taxable social security and Medicare wages? a. Form 940 b. Form 941 c. Form 944 d. Form 945

b. Report taxable social security and Medicare wages on Form 941.

If the employer's total tax liability for the lookback period is $75,000, when must tax liability of less than $100,000.00 be deposited? a. By the due date of Form 941 b. By the 15th of the month after the withholding c. By Wednesday or Friday under the semiweekly rules d. By the next business day

c. A semiweekly depositor has a tax liability greater than $50,000 during the lookback period and makes tax deposits by the Wednesday or Friday after the end of the deposit period.

Which of the following is true of electronic reporting? ❑a. Form W-3 is used to transmit Forms W-2 to the SSA. ❑b. It is recommended if you le more than 250 Forms W-2. ❑c. Do not send paper copies of Forms W-2 if you le electronically ❑d. Filers of Forms 1099-MISC must file electronically.

c. Do not send paper returns if you file electronically; one of the reasons why the federal government requires large employers to file electronically is to reduce paper.

An employee claims married with five allowances on Form W-4 and earns $1,000 per month. Although he hasn't claimed exempt status on his Form W-4, no federal income tax is withheld from his wages. Which of the following is true? ❑a. The employee will not be eligible for the earned income tax credit. ❑b. If he filed Form 1040 last year, he will continue to receive EIC payments this year. ❑c. You must provide the employee detailed information about the EIC. ❑d. The employee can get the EIC even if he doesn't le a tax return.

c. Employers are required to provide EIC information to all em- ployees who do not claim exempt status yet have no federal income tax withheld. Eligible employees can receive EIC when they file their tax return.

A company has consistently deposited 100% of its tax liability on time. What is the last date it can file its first quarter Form 941? ❑ a. April 15 ❑ b. April 30 ❑ c. May 10 ❑ d. May 15

c. Employers who make timely deposits of the full amount of employment taxes can get a 10-day filing extension. The filing deadline for the first quarter (January 1 to March 31) is normally April 30. The deadline can be extended to May 10.

A semiweekly depositor has a Friday payroll with a tax liability of $85,000. The next Monday is a holiday. When must the employer deposit the taxes to avoid penalties? ❑a. The next Monday ❑b. The next Wednesday ❑c. The next Thursday ❑d. The next Friday

c. Semiweekly depositors always have three business days to make their deposits after the deposit period ends.

Where is Form 941 filed? ❑a. With the local IRS office ❑b. With EFTPS ❑c. At the IRS designated address ❑d. With the IRS National Office

c. Tax returns are sent to the IRS address found in each form's instructions.

What is the FUTA tax rate? ❑ a. 0.6% ❑ b. 5.4% ❑ c. 6.0% ❑ d. 7.65%

c. The FUTA tax rate is 6.0%.

To determine if an employer is a monthly or semiweekly depositor for 2015, the lookback period is? ❑a. January 1 - December 31, 2014 ❑b. October 1, 2013 - September 30, 2014 ❑c. July 1, 2013 - June 30, 2014 ❑d. January 1 - December 31, 2013

c. The lookback period for 2015 is July 1, 2013 through June 30, 2014.

The company (see Question 6) paid only 98% of its tax liability on the due date (February 15). Which of the following is true? ❑a. It faces a stiff penalty for failure to pay its obligation. ❑b. The remaining 2% must be paid by March 15. ❑c. The remaining 2% must be paid by the due date of its rst quarter Form 941. ❑d. The remaining 2% must be paid by December 31.

c. The safe-harbor rule allows depositors to avoid penalties as long as they deposit 98% of their tax liability by the due date. All monthly depositors must deposit the full amount by the due date of their first quarter Form 941 (April 30).

If the employer's total tax liability for a payday is $150,000, when must the taxes be deposited? a. By the due date of Form 941 b. By the 15th of the month after the withholding c. By Wednesday or Friday under the semiweekly rules d. By the next business day

d. A tax liability of $100,000 or more must be deposited on the next business day.

If you are not using EFTPS to make a tax payment, where must it be made? ❑a. The IRS ❑b. Any local bank ❑c. The Federal Reserve Bank ❑d. The U.S. Treasury

d. Annual and quarterly depositors can pay the taxes due when filing Form 941 or 944. The payment must be made to the U.S. Treasury.

Generally, how frequently are FUTA taxes deposited? ❑ a. Daily ❑ b. Semiweekly ❑ c. Monthly ❑ d. Quarterly

d. Employers with a quarterly FUTA tax liability of $500 or more must deposit the tax quarterly.

A company pays semimonthly on the 15th and the last day of the month. The company reported $40,000 for federal income tax, social security tax, and Medicare tax withheld from employees' wages and the employer's social security tax and Medicare tax during the lookback period. This month, one payday occurs on Wednesday, January 15th. When is the company required to make a tax deposit? ❑a. Within three business days of the 15th ❑b. On or before the following Wednesday ❑c. With its quarterly Form 941 ❑d. On or before the 15th of the following month

d. The company is a monthly depositor because the aggregate amount of employment taxes for the lookback period was $50,000 or less and must deposit the taxes by the 15th of the following month.

All of the following items are reported on Form 941 EXCEPT: ❑a. wages, tips and other compensation. ❑b. federal income tax withheld. ❑c. social security tax. ❑d. social security numbers.

d. The employee's social security number is not reported on Form 941.

An employee quit his position on April 10. Generally, when must the company send the former employee copies of his W-2? a. By May 10 b. By May 30 c. By December 31 d. By January 31

d. Unless the former employee has asked in writing to get his W-2 earlier, you can send it along with all employees' wage and tax statements. If he does ask in writing to get the W-2 earlier, you have 30 days to send it to him.