Deck 9: Payroll, Estimated Payments and Retirement Plans

Question 1

Marty earned $5,000 in interest income from the Honey Springs Bank. She failed to notify the bank that she was not subject to backup withholding.
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a. If Marty's taxable income puts her in the 25 percent bracket, how much would Honey Springs Bank withhold on the $5,000 of interest earnings?
b. If Marty's taxable income puts her in the 15 percent bracket, how much would Honey Springs Bank withhold on the $5,000 of interest earnings?

Answer 1

a. $1,200. The bank should withhold at the statutory rate of 24 percent, and thus would retain $1,200.
b. $1,200. Marty's personal tax rate has nothing to do with the amount the bank is required to withhold.

Question 2

Steve is a single man who lives by himself. He has one job as a computer technician. How many withholding allowances must he claim?

A)2
B)3
C)5
D)10
E)He can claim any number of withholding allowances that he believes will leave him with proper withholding.

Answer 2

E

Question 3

Which of the following amounts paid by an employer to an employee is not subject to withholding?

A)Commissions
B)Travel expense reimbursements from an accountable plan
C)Salary
D)Bonus
E)All of these are subject to withholding

Answer 3

B

Question 4

An employee is reimbursed for travel and other ordinary and necessary expenses. Under what circumstances would income tax be withheld from the employee on these amounts?

Question 5

Janet is single and claims two allowances on her Form W-4. In 2019, her salary is $1,900 per month.
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a.Use the percentage method to calculate the amount of Janet's withholding for a monthly pay period.
b.Use the withholding tables to determine the amount of Janet's withholding for a monthly pay period.​

Question 6

What percentage of gross food and beverage sales is used in determining the amount of tips that an employer must report as allocated to employees?

A)8 percent
B)10 percent
C)12 percent
D)15 percent
E)None of these

Question 7

If an employee does not complete a Form W-4, the employer must withhold tax as if the employee were single with no exemptions.

Question 8

Taxpayers with large amounts of deductions may claim extra withholding allowances on their Form W-4s.

Question 9

What is the purpose of backup withholding?

Question 10

A nondeductible penalty may be imposed on underpayments of estimated taxes.

Question 11

If a husband and wife both work, they must divide their withholding allowances equally on their W-4 Forms.

Question 12

If an individual taxpayer discovers that his or her original estimate for estimated tax payments was inaccurate, the taxpayer should continue to make payments based on the original estimate and pay any additional amount or request any refund when the tax return is filed.

Question 13

If taxpayers fail to provide their bank with a taxpayer identification number, they are subject to backup withholding on interest payments.

Question 14

Individual quarterly estimated tax payments are filed with Form 1040-ES.

Question 15

Payors are required to use backup withholding if:

A)The taxpayer did not give the payor his or her taxpayer identification number.
B)The taxpayer fails to certify that he or she is not subject to backup withholding.
C)The IRS informs the payor that the taxpayer gave an incorrect identification number.
D)The IRS informs the payor to start withholding because the taxpayer has not reported the income on his or her tax return.
E)All of these will require the use of backup withholding

Question 16

Choose the incorrect answer. In completing a Form W-4, employees may claim extra allowances:

A)If they are paying deductible alimony.
B)If they have tax credits.
C)If they expect to have large amounts of itemized deductions.
D)If they have high levels of interest and dividend income.

Question 17

Mike is a single taxpayer. For the payroll period of November 2019, he is paid wages of $2,400, monthly. Mike claims three allowances on his Form W-4.
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a.Use the percentage method to calculate the amount of Mike's withholding for a monthly pay period.
b.Use the withholding tables to determine the amount of Mike's withholding for the same period.

Question 18

Karen is single with no dependents and earns $18,000 a year. She gives her employer a Form W-4 on which she claims 17 allowances. What is her employer required to do about the Form W-4? Explain.

Question 19

Gordon is 60 years old and Mary is 55 years old. They are married with three dependent children over age 17, and Gordon has one job that pays wages of about $73,000. Assuming that Mary is unemployed, how many allowances should Gordon claim on his 2019 Form W-4, assuming no extra allowances for deductions or adjustments?

A)Five
B)Six
C)Seven
D)Eight
E)Nine

Question 20

The two most common methods of determining federal income tax withholding are the percentage method and the wage bracket method.

Question 21

For 2019, the maximum base for the Social Security portion of the FICA tax is:

A)$128,700
B)$127,200
C)$128,400
D)$132,900
E)None of these

Question 22

Which of the following taxpayers are not required to make estimated payments?

A)A car mechanic who is self-employed and earns $50,000 a year.
B)A wealthy individual whose earnings are from corporate dividends.
C)An employee who works at a local department store with appropriate withholding and no other income.
D)All of these must make estimated payments.

Question 23

An individual who expects to receive more than $500 of income from sources other than wages meets the requirements for having to file quarterly estimated tax payments.

Question 24

For 2019, Randy, an unmarried taxpayer, has wages of $45,000. He has a significant amount of income from dividends and interest and therefore expects to have a federal income tax liability of $18,000. His total federal income tax withholding for the year is $9,500. Randy had $100,000 of adjusted gross income and a federal tax liability of $11,000 on his 2018 return. To avoid a penalty for underpayment of estimated taxes, what is the minimum amount of total estimated tax that Randy must pay in 2019? Assume the payments are made on a timely basis.

Question 25

Mark has two jobs during 2019. One employer withheld and paid FICA taxes on $81,200 of Mark's salary and the other employer withheld and paid FICA taxes on $52,800 in salary paid to Mark. Calculate the amount of Mark's credit for the overpayment of Social Security taxes that he should claim on his 2019 Form 1040.

Question 26

When taxpayers overpay Social Security taxes, the excess taxes may be claimed as a credit against their income tax liability.

Question 27

Taxpayers with self-employment income who also have Form W-2 wage income from employment may be able to avoid making estimated tax payments by filing a Form W-4 and increasing the amount of their withholding.

Question 28

The Foemina Corporation has two employees, Nancy and Penny.

a.If Nancy earns wages of $17,000 for 2019, calculate the total amount of the FICA tax that must be paid:
by Nancy
by Foemina Corporation
Total

b.If Penny earns wages of $135,000 for 2019, calculate the total amount of the FICA tax that must be paid:
by Penny
by Foemina Corporation
Total

Question 29

Redford's salary was $134,000 in 2019. What would his total combined FICA tax (Social Security & Medicare) withheld from his salary be for the year?

A)$7,960.80
B)$19,737.00
C)$9,831.30
D)$10,182.80
E)None of these

Question 30

Mark the incorrect answer. Estimated income tax payments:

A)Need not be filed if the estimated tax, after subtracting withholding, can reasonably be expected to be more than $1,000.
B)If inadequate, may result in nondeductible penalties.
C)May be based on the amount of the tax liability for the prior year.
D)Are made in four installments on April 15, June 15, and September 15 of the tax year and on January 15 of the following year.

Question 31

In 2019, Lew, who is single, earned wages of $386,724.
a. What is the amount of Social Security tax withheld from his salary?
b. What is the amount of Medicare tax (including additional 0.9% tax if any) withheld from his salary?

Question 32

The Social Security portion of the FICA tax is imposed at a rate of (not including any additional tax for high-income earners):

A)6.2 percent for the employee and 7.65 percent for the employer.
B)6.2 percent for only the employer.
C)6.2 percent for only the employee.
D)6.2 percent for the employee and 6.2 percent for the employer.
E)None of these.

Question 33

Mark the correct answer. FICA taxes are:

A)7.65 percent of all earned income with no limitations.
B)7.65 percent of earned income up to $150,000.
C)Paid by the employee and by the employer.
D)Not subject to cost of living adjustments each year.

Question 34

In 2019, the maximum amount of wages subject to the Social Security portion of the FICA tax is unlimited.

Question 35

Mary is self-employed for 2019. Mary estimates her required annual estimated tax payment for 2019 to be $4,000. Mary had a $500 overpayment of last year's taxes which she will apply against her first quarter estimated payment.
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a.How much should Mary pay with her first quarter estimated tax voucher?
b.When is the payment due?

Question 36

Richard is employed by a major defense contractor and earns $156,000 in 2019. Calculate:
a. The amount of Social Security tax withheld from his income
b. The amount of Medicare tax withheld from his income
c. The amount of FUTA withheld from his income

Question 37

If an individual taxpayer's quarterly estimated tax payments equal or exceed 70 percent of the tax due for the current year, the taxpayer will not be subject to the penalty for underpayment of estimated tax.

Question 38

Which of the following statements about the FICA tax is not true?

A)The FICA tax is composed of two parts, Social Security and Medicare.
B)Self-employed individuals may elect to pay either FICA taxes or self-employment taxes.
C)FICA taxes are paid by both the employees and their employers.
D)The income amount subject to the Social Security portion of FICA tax has increased significantly over the years.
E)Wages subject to FICA tax that are received by a self-employed individual reduce the individual's maximum Social Security tax base.

Question 39

Elwin worked at three jobs during 2019. He earned $30,000, $27,000, and $9,000, respectively, from the jobs. What is the total amount of FICA tax that would have been withheld from Elwin's wages?

A)$4,054.80
B)$4,092.00
C)$5,003.10
D)$5,049.00
E)None of these

Question 40

Elwin worked at three jobs during 2019. He earned $30,000, $27,000, and $9,000, respectively, from the jobs. What amount can Elwin apply as a credit against his 2019 income tax liability for overpayment of FICA taxes?

A)$0
B)$2,754.00
C)$5,049.00
D)$130.50
E)None of these

Question 41

The original copy of all Forms W-2 and Form W-3 must be filed with the Social Security Administration by January 31 of the year following the calendar year in which the wages were paid, regardless of the tax year of the employer.

Question 42

A credit against the FUTA tax is available for state unemployment tax paid by the employer.

Question 43

In 2019, Willow Corporation had three employees. Two of the employees worked full-time and earned salaries of $25,000 each. The third employee worked part-time and earned $4,000. The employer timely paid state unemployment tax equal to 5.4 percent of each employee's wages up to $7,000. How much unemployment tax was paid to the state from Willow Corporation for 2019?

A)$136
B)$168
C)$918
D)$972
E)$1,134

Question 44

The Pear Corporation pays its employees every 2 weeks. During the look-back period, in each pay period the total withholding and FICA tax (employees' and employer's share) amounted to $750. How often must the Pear Corporation deposit payroll taxes?

A)Annually
B)Monthly
C)Quarterly
D)Daily
E)None of these

Question 45

Provide answers to the following questions:
a. What form does an employer use to report wages to an employee?
b. When must the employer give this form to the employee?
c. What form does an employer use to report wages to the Social Security Administration?
d. When must the employer file the form with the Social Security Administration?

Question 46

For each of the following payments, indicate the form (Form W-2, W-4, W-2G, 1099-B, 1099-DIV, 1099-INT, 1099-MISC, or 1099-R) that should be used to report the payment.
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a.Dividends from a mutual fund
b.Las Vegas gambling winnings
c.Interest paid by a bank
d.Payment of salary and commissions to an employee
e.Distribution from an IRA account

Question 47

The FUTA tax is paid by:

A)Employees only.
B)Employers only.
C)Employers and employees.
D)Neither employers nor employees.
E)The federal government.

Question 48

Which one of the following payroll tax deposit schedules is not a rule that applies for a class of employers?

A)One-day deposit rule
B)Eight-day deposit rule
C)Semi-weekly deposit rule
D)Monthly deposit rule
E)Yearly deposit rule

Question 49

When required, gambling winnings are reported by the gambling establishment on Form 1099-MISC.

Question 50

Form 1099-DIV is an information return used to show the payment of:

A)Distributions from a partnership.
B)Interest.
C)Dividends.
D)Unemployment compensation.
E)None of these

Question 51

Which of the following statements is true with regard to the reimbursement of employee business expenses?

A)Reimbursements of ordinary and necessary expenses are subject to federal income tax withholding.
B)Excess reimbursements of ordinary and necessary expenses are never subject to withholding.
C)Reimbursements received by an employee under a plan which contains a requirement to return excess amounts, and the employee does so on a timely basis, are excluded from the definition of wages subject to withholding.
D)Provided that reimbursements are received by an employee under a plan which requires the employee to substantiate the expenses to his employer, the amounts are excluded from the definition of wages subject to withholding, without regard to whether the employee actually substantiates the expenditures.
E)All of these are true statements.

Question 52

The FUTA tax is a voluntary unemployment tax which an employer may or may not wish to contribute toward.

Question 53

Which of the following forms is used by an employer to report quarterly wages and federal payroll tax withholdings and deposits?

A)Form 940
B)Form 941
C)Form 1099
D)Form W-2
E)None of these

Question 54

Which one of the following forms must an employer provide to his employee by January 31 of the following year?

A)W-3
B)W-2
C)W-4
D)941
E)1040

Question 55

Employer deposits of withheld taxes may be made to any bank.

Question 56

The FUTA tax for 2019 is based on 6.2 percent of each employee's wages up to $10,000.

Question 57

Which of the following forms should be used by a company to report a 2019 payment of $1,500 to a computer consultant who is not an employee of the company?

A)Form 1099-INT
B)Form W-4
C)Form W-2
D)Form 1099-DIV
E)Form 1099-MISC

Question 58

Gambling winnings must be reported to the IRS, but withholding of taxes on winnings is never required.

Question 59

Dividends paid to a shareholder by a corporation should be reported on which of the following forms?

A)1099-INT
B)1099-DIV
C)1099-MISC
D)1099-R
E)None of these

Question 60

Employers must provide employees with their Form W-2 by February 15 of the year following the calendar year of payment of the wages.

Question 61

Oliver has two employees who earned the following amounts during 2019: $$\begin{array} { l r } \text { June } & \$ 17,000 \\\text { Eric } & \$ 5,000\end{array}$$ If Oliver timely pays 5.4 percent for state unemployment tax, what is the amount of his 2019 FUTA after the state tax credit?

A)$0
B)$72
C)$112
D)$176
E)None of these

Question 62

George has four employees who earned $75,000, $27,000, $2,100, and $6,200 during 2019, respectively. He paid 5.4 percent for state unemployment tax. How much FUTA tax will George owe for the four employees?

A)$133.80
B)$882.40
C)$321.60
D)$224.00
E)$163.70

Question 63

The Wash Your Paws Self-Service Dog Wash, a California business, had two employees during the year. Lindsey worked from January through March 15 and earned $2,750. Avery worked for the whole year and earned $20,000. The State of California assesses unemployment tax at the rate of 5.4 percent. Calculate the total FUTA tax after the credit for the state unemployment tax.

Question 64

Clay changes jobs in 2019 and decides to roll his $50,000 retirement plan balance from his old employer's plan into an IRA. He instructs the trustee of the retirement plan to transfer the money directly to the IRA he has chosen.
What are the tax consequences of the transfer to Clay? Explain.

Question 65

In order for a pension plan to be considered a "qualified" retirement plan, the plan must satisfy certain minimum vesting requirements.

Question 66

Sally is an employer with one employee, Sara. Sara earned $12,000 from January 1, 2019 through June 30, 2019, and the state unemployment tax rate is 5.4 percent. Calculate the following amount for Sally.
a.FUTA tax after the state tax credit
b.What form should Sally use to report her FUTA tax liability for 2019?

Question 67

Paul earns $55,000 during the current year. His employer contributes $3,000 during the year to a qualified retirement plan on behalf of Paul. The amount of the contribution for the year is based on Paul's desire to have a monthly retirement benefit of $3,500. What type of retirement plan is this?

A)Defined benefit plan
B)Defined contribution plan
C)Employee earnings plan
D)Profit sharing plan
E)None of these

Question 68

Johnice's employer contributes $3,000 to a qualified retirement plan in 2019 for Johnice's retirement.
a.Is the $3,000 deductible by Johnice's employer in 2019? Explain.
b.Is the $3,000 income to Johnice in 2019? Explain.
c.Is either the interest or dividend earnings on the $3,000 contribution taxable to Johnice in 2019? Explain.

Question 69

Ursula, an employee of Ficus Corporation, is 35 years old and plans to retire in 20 years. The corporation has a qualified retirement plan and contributes $2,000 during 2019 for Ursula. In 2019, how should Ursula treat the $2,000 contribution made on her behalf by the corporation?

A)The $2,000 and any earnings thereon must be included in Ursula's 2019 gross income.
B)Only the earnings on the $2,000 contribution must be included in Ursula's 2019 gross income.
C)Ursula is not required to include either the $2,000 contribution or the earnings thereon in her 2019 gross income.
D)Ursula must include only $100 (1/20 of the $2,000 contribution) in her gross income for 2019, but the same amount must be included in gross income for the following 19 years.
E)None of these

Question 70

Which of the following statements is true?

A)A distribution rollover from a retirement plan can only be done as a direct transfer from one account to another account.
B)The trustee must withhold 10 percent of the amount distributed whenever assets are transferred from one retirement plan to another retirement plan.
C)If a taxpayer decides to rollover an IRA to a new account, then the whole IRA must be rolled over.
D)A taxpayer is allowed only one direct transfer each year from one retirement account to another retirement account.
E)There are no current-year tax consequences for a direct transfer.

Question 71

Which of the following statements is true of a distribution rollover (not a trustee-to-trustee transfer) from a retirement plan?

A)The taxpayer must instruct the trustee of the retirement plan to transfer assets to the trustee of another plan.
B)No withholding is required.
C)In one year, there is no limit to the number of times a taxpayer can request a distribution rollover from one IRA to another IRA.
D)Assuming there are no unusual events, the taxpayer has a maximum of 60 days in which to transfer funds to a new plan to avoid current taxes and penalties.
E)All of these are true.

Question 72

Under a defined contribution plan, the contribution made on behalf of the employee is determined using a formula dependent on the employee's current compensation.

Question 73

In 2019, Willow Corporation had three employees. Two of the employees worked full-time and earned salaries of $25,000 each. The third employee worked only part-time and earned $4,000. The employer timely paid state unemployment tax equal to 5.4 percent of each employee's wages up to $7,000. How much FUTA tax is due from Willow Corporation for 2019, after the credit for state unemployment taxes?

A)$0
B)$102
C)$108
D)$918
E)$1,134

Question 74

Penny, age 52, takes a distribution of $30,000 from her Traditional IRA account. She plans to deposit it in an IRA with a different bank. Shortly after the distribution she drives her car through the front window of her credit union in a freak accident, and uses the funds to pay for the damages. What income and/or penalties related to the failure to rollover the IRA must she show on her tax return?