Chapter 1: The Employer-Employee Relationship (Practice Exam)

C12. What is the minimum amount earnings requiring a 1099-MISC?

$600

C6. Reasonable Basis Test (Safe-Harbor Rules) The status of independent contractor applies if the ER relied on one or more of the following safe-harbor rules:

1. Judicial president or published rulings. 2. Past IRS audit. 3. Long-standing recognize industry practice. 4. 25% of the industry categorized workers as independent contractors. 5. ER can seek protection under section 530.

C8. Name two "behavioral controls" in the Common Law Test

1. Level of instruction the business gives the worker. 2. Level of training provided to the worker.

C1. Statutory non-employees (READ)

1. Real estate agents licensed 2. Yvonne for example direct sellers

C7. Name five "financial controls"in the Common Law Test

1. Reimbursable expenses versus non-reimbursable expense. 2. Substantial investment in the work. 3. Services are available to the public. 4. How the worker is paid (hourly or by the job). 5. Profit or loss.

10. Which of the following situations describes one of the general requirements that must be met for workers to be considered statutory employee's? A. They have a continuing relationship with the employer B. They have a substantial investment in the business equipment C. They are licensed by the state agents D. Most of their compensation is related to sales.

A

3. All of the following types of evidence support an employee's treatment of a worker as an independent contractor under the "reasonable basis" Tatian test except: A. Place of work B. Court decisions C. private letter rulings D. Past IRS employment tax audits

A

9. How long must an employer retain a I-9 form for a terminated employee who worked for the employer for more than four years? A. 1 year after termination B. 3 years after termination C. 7 years after termination D. does not have to keep a terminated employee's I-9 forms

A

13. The definition of "a "newly hired" employee for the purposes of new hire reporting includes an employee who was previously employed by the employer but not been separated from that prior employment for: A. At least six weeks B. At least 60 consecutive days C.At least 2 calendar months D. At least 30 consecutive days

B

2. Which of the following forms must be submitted to an independent contractor (Who is paid at least $600) After the end of the year for services performed during the year? A. Form W-2 B. Form 1099-Misc (or, beginning with payments made in 2020 reported in 2021, form 1099-NEC. C. Form 1096 D. Form Ss-8

B

4. All of the following facts and circumstances would be typical of an independent contractor except: A. Works offsite B. Paid by the hour C. Furnish his own tools D. Set on work hours

B

6. All of the following workers are statutory employees except: A. full-time life insurance sales persons B. qualified real estate agents C. home workers D. traveling or city salespersons

B

1. Which of the following forms may be completed and submitted to the IRS to determine the employment status of an individual for federal income and employment tax purposes? A. Form SS-4 B. Form SS-5 C. Form SS-8 D. Form W-9

C

11. Each of the following goals is a reason why states might require employers to report newly hired employees except: A. To detect welfare fraud. B. To detect unemployment compensation fraud C. To locate individuals who have not claimed state lottery winnings D. To locate non-custodial parent subject to a child support withholding order.

C

12. Which of the following individuals are statutory non-employees? A. Homeworkers B. Full-time life insurance salespersons C. Newspaper delivers D. Traveling sales persons

C

14. Other than the employees name, address, and SSN, and the employee's name, address, and EIN, federal law requires that a new hire report must be include the employee's A. Date of birth B. Health insurance coverage. C. First day of work for pay D. Starting salary or hourly rate of pay.

C

5. Each of the following individuals would be classified as an employee except: A. Controller of a company B. college professor C. Attorney (solo practitioner) D. city police officer

C

7. Full-time life insurance salespersons paid solely by commission are exempt from: A. Social Security and Medicare taxes B. Social Security tax only C. FUTA tax. D. Social Security, Medicare, and FUTA taxes

C

8. If an employer fails to withhold Social Security and Medicare taxes from a worker it misclassifies as an independent contractor and does not file a form W-2 or form 1099 for that worker, what penalty may the IRS impose? A 10% of the employees share of Social Security and Medicare taxes. B. 20% of the employees share of Social Security and Medicare taxes. C. 40% of the employees share of Social Security and Medicare taxes. D 100% of the employees share of Social Security and Medicare taxes.

C

15. If an employer that has employees in more than one state wants to report all its new hires to just one state, if can request permission to do so by filing the following form with the department of health and human services: a. Form W-4, employees withholding certificate. B. Form W-9, Request for taxpayer identification number and certification C. Multiple worksite report D. Multistate Employer Notification Form for New Hire Reporting.

D

C9. Common Law Test

Determines the degree to which the worker is controlled. ER has the right to control what work will be done and how the work will be done. EE is the employee.

15. Employers can demand specific documents to prove an employee's eligibility to work in the US.

False; As long as the EE provides documents from the USCIS Acceptable Doc List, that is all that is required.

4. Telemarketers working under the direction of a company are usually independent contractors?

False; Because the company has control over the work & hoe iy is accomplished (scripts, etc.)

20. If an employee resigns after working for an employer for five years, the employer must retain the employee's Form I-9 for three years after the employee's last day of employment.

False; ER must keep I-9 retention for 3 years after the date of hire or 1 year after term date; whichever is later.

2. Full-time life insurance salespersons are always considered statutory employees and are never subject to FUTA?

False; FT Ins. Salespeople ARE Statutory EEs, and ARE subject to FUTA.

16. Employers who claim Section 530 status protection for their workers because a significant segment of their industry classifies similar workers the same way must show at least 50% of the industry treats these workers as independent contractors.

False; Sec. 530 = a relief provision for ERs should they misclassify using the "Reasonable Basis" test. 3 Criteria must be met: Reporting Consistency, Substantiative Consistency, and Reasonable Basis. i.e. ER continuously treats all EEs that perform same like work as ICs & files all applicable forms to the IRS.

7. If an employer uses the E-verify Program, a new hire does not have to enter their SSN in Section 1 of Form I-9.

False; Under Federal Reporting Requirements: 1) EE's Name, Add., & SSN; 2) Date of first work; 3) ER's Name, Add., & FEIN

C5. What form is used to determine worker status for purposes of federal employment taxes and income withholding?

SS-8

1. If the employer has the right to control what work will be done and how that work will be done, an employer-employee relationship exists under common law?

True

17. An employer that changes it's classification of a worker from independent contractor to employee may still claim Section 530 protection for the period before the change in treatment.

True

18. An IRS agent conducting an employment tax audit must give the employer written notice of the availability of the Section 530 protections.

True

3. Workers hired through a temporary help agency are not employees of the client company?

True

5. An accountant who provides bookkeeping and payroll services to several local businesses and works at her own office is an independent contractor?

True

6. The responsibility for determining the employment status of an individual who performs services rests with the employer.

True

12. Under the ABC test, one of the determining factors is whether the worker in question is free from control or direction in performing the work both by agreement and in reality.

True; ABC Test Factors: 1) Absence of Control; 2) Business is Unusual/Away; 3) Normally dictated as IC.

8. If an independent contractor timely provides the employer with the correct Taxpayer Identification Number, there will be no backup withholding?

True; Backup Withholding is 24%

11. Technical services specialists are specifically excluded from the "reasonable basis" test?

True; Must be tested under Common Law Test

14. If an employee is rehired by an employer 75 days after being terminated, the employer must report the employee as a new hire.

True; Must be treated as a "new hire" if being rehired after a prior 60 day termination period.

10. Length of employment makes no difference in determining employment status?

True; So long as is defined as an EE under Common Law Test - hours/days worked; PT vs. Temp EE holds no bearing.

C10. What is the form number required for an Individual Taxpayer Identification Number?

W-7

C4. What are statutory employee's?

While statutory employees are not employees under the common-law test they are treated as employees for certain employment tax purposes. These employees have no substantial investment in the business.

C11. If the independent contractor does not provide a Taxpayer Identification Number is there a back up withholding requirement, and if so, what is the percentage?

Yes, 24%

C2. Statutory employees (PHAT)

1. Full time (Insurance sales agents) 2. Home workers (certain) (FUTA exempt) 3. Agent or commission drivers 4. Traveling sales person (full-time traveling or city) W-2 form

13. Part-time employees are not covered under the federal payroll tax laws even if they meet the common law test for employment status.

False

19. Under the federal new hire reporting requirements, multistate employers must report a new hire to the state in which the employee works.

False

9. Managers and Executives are excluded from the employer-employee relationship for tax purposes.

False

C3. What taxes must be paid for statutory employees?

The payments made to statutory employees are not subject to FIT withholding but they are subject to FICA and FUTA taxes. Although employers are not responsible to withhold FIT, employees are responsible for filing these taxes