Deck 4: Income Tax Withholding

Question 1

In the IRA form of the Simple Retirement Account, employers must match the employee's contribution, dollar-for-dollar, up to 3 percent of the employee's compensation.

Answer 1

True

Question 2

Cash tips of $20 or more received by a tipped employee in a calendar month are treated as remuneration subject to federal income tax withholding.

Answer 2

True

Question 3

There is no limit to the amount of educational assistance that is exempt from federal income tax withholdings.

Answer 3

False

Question 4

In the case of a 401(k) plan, employees age 50 or over can shelter an extra $10,000 of their wages from federal income tax.

Question 5

All taxable noncash fringe benefits received during the year can only be added to the employees' taxable pay on the last payday of the year.

Question 6

The withholding of federal income and FICA taxes from a tipped employee is made from the employee's wages that are under the employer's control.

Question 7

There is no limit to the amount that an employer can contribute in an employee's SIMPLE retirement account.

Question 8

Before any federal income taxes may be withheld, there must be, or must have been, an employer-employee relationship.

Question 9

Under the federal income tax withholding law, income taxes are not withheld from the value of meals that employers furnish workers on the employers' premises for the employers' convenience.

Question 10

The IRA format of the SIMPLE plan allows employees to make tax-free contributions of up to $13,000

Question 11

Noncash fringe benefits that are provided employees are treated as nontaxable income and thus are excluded from federal income tax withholding.

Question 12

Evers, who works for two employers, is entitled to three personal allowances. Evers must claim the three allowances with each of the two employers during the entire calendar year.

Question 13

A waiter receives cash tips amounting to $120 in a month. The waiter must report the amount of the cash tips to the employer by the 10th of the month following the month they receive the tips.

Question 14

An employer must withhold federal income taxes on both the tips reported by tipped employees and the tips that the employer allocates to the employees.

Question 15

The payments to a cook employed by a college fraternity are excluded from federal income tax withholding.

Question 16

Persons eligible for deductible IRA contributions may put aside a specified amount of their compensation without paying federal income taxes on that amount.

Question 17

The amount of federal income taxes to be withheld is determined after subtracting from the employee's gross wages any local and state taxes.

Question 18

Under the federal income tax withholding law, a definition of employee excludes partners.

Question 19

Since not-for-profit corporations are exempt from federal income taxes, they are not defined as employers under the federal income tax withholding law.

Question 20

The special withholding allowance may be claimed only by those employees who do not itemize deductions on their income tax returns.

Question 21

Which of the following noncash fringe benefits does not represent taxable income subject to federal income tax withholding?

A) Flight on employer-provided airline
B) Personal use of company car
C) Sick pay
D) Employer-paid membership to a country club
E) All of the above are taxable.

Question 22

A person holding two jobs may have additional income tax withheld by increasing the number of withholding allowances claimed.

Question 23

In calculating a "gross-up" amount of a bonus payment, an employer does not use the OASDI/HI tax rates in the formula.

Question 24

Under the federal income tax withholding law, which of the following is not defined as an employee ?

A) Partner who draws compensation for services rendered the partnership
B) General manager, age 66
C) Payroll clerk hired one week ago
D) Governor of the state of Florida
E) Secretary employed by a not-for-profit corporation

Question 25

Employees must be given Form W-2 on or before January 31 following the close of the calendar year.

Question 26

After completion of Form W-4, an employer must copy the employee's social security card and place it in the employee's employment file.

Question 27

When you pay supplemental wages at the same time as regular wages, the method of calculating the withholding is the same for vacation payments as for semiannual bonuses.

Question 28

The standard deduction varies according to whether the wage-bracket method or the percentage method is used.

Question 29

Which of the following statements correctly describes the withholding of federal income taxes and social security taxes on tips?

A) Tips amounting to $10 or more in a calendar month must be reported by tipped employees to their employers.
B) The withholding of federal income taxes on employees' reported tip income is made from the amount of tips reported by employees.
C) When employees report taxable tips in connection with employment in which they also receive regular wages, the amount of tax to be withheld on the tips is computed as if the tips were a supplemental wage payment.
D) Employers do not withhold FICA taxes on the tipped employees' reported tip income.
E) None of the above statements is correct.

Question 30

If married employees do not claim their marital status on Form W-4, the employer must withhold according to the withholding tables for single employees.

Question 31

For state income tax purposes, all states treat 401(k) plan payroll deductions as nontaxable.

Question 32

Gere became the father of triplets on May 21, 20--. He must file an amended Form W-4 on or before May 31.

Question 33

Of the two main methods of withholding, only the wage-bracket method distinguishes unmarried persons from married persons.

Question 34

By completing Form W-4P, a person can elect to have no income tax withheld from the annuity amounts the person receives.

Question 35

If you, an employer, are filing 550 Forms W-2, you must use electronic filing rather than paper Forms W-2.

Question 36

For which of the following payments is the employer required to withhold federal income taxes?

A) Advances made to sales personnel for traveling expenses
B) Tipped employee's monthly tips of $120
C) Deceased person's wages paid to the estate
D) Minister of Presbyterian church
E) All of the above

Question 37

An employer is required to submit a copy of the employee's Form W-4 to the IRS if the employee has claimed 15 or more withholding allowances.

Question 38

Form W-3 is filed with the Social Security Administration when transmitting information returns on Forms W-2.

Question 39

An employee submits an invalid Form W-4 to the employer and does not replace it with a valid form. The employer should withhold federal income taxes at the rate for a single person claiming no exemptions.

Question 40

On August 5, 20--, Hunt filed an amended Form W-4 to show a decrease in the number of allowances claimed. Hunt's employer must put the new withholding allowance certificate into effect before the next weekly payday on August 9.

Question 41

Exhibit 4-1 : Use the following tables to calculate your answers.  
Refer to Exhibit 4-1 .Mary Matthews made $950 during a biweekly pay period only social security (fully taxable) and federal income taxes attach to her pay.  Matthews contributes $100 each biweekly pay to her company's 401k.  Determine Matthews take home pay if she is married and claims 2 allowances. (Use Wage Bracket Method) ________________

Question 42

Exhibit 4-1 : Use the following tables to calculate your answers.  
Refer to Exhibit 4-1 . Carson Smart is paid $1,200 every two weeks plus a taxable lodging allowance of $100. He is a participant in the company 401(k) plan and has $150 deducted from his pay for his contribution to the plan. He is married with two allowances. How much would be deducted from his pay for federal income tax (using the wage-bracket table)?

Question 43

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

Question 44

A company must withhold federal income taxes from payments made to independent contractors in which of the following cases?

A) When there is a signed contract between the parties.
B) When the contractor is paid $400.
C) When the contractor is a corporation.
D) When the contractor has not provided a taxpayer identification number and the contract is $600 or more.
E) All of the above.

Question 45

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

Question 46

Exhibit 4-1 : Use the following tables to calculate your answers.  
Refer to Exhibit 4-1 . Edward Dorsey is a part-time employee, and during the biweekly pay period he earned $395. In addition, he is being paid a bonus of $300 along with his regular pay. If Dorsey is single and claims two withholding allowances, how much would be deducted from his pay for FIT? (There are two ways to determine his deduction-do not use table for percentage method.)

Question 47

A personal allowance:

A) amounted to $2,000 in 20--.
B) may be claimed to reduce the amount of withholdings from the employee's earnings.
C) is indexed for inflation every calendar quarter.
D) may be claimed at the same time with each employer for whom an employee is working during the year.
E) for one person is a different amount for a single versus a married taxpayer.

Question 48

Arch gives you an amended Form W-4 dated March 8, 20-- on which he claims two additional withholding allowances. He asks you to refund the excess taxes that were deducted from January 1 to March 8 when Arch claimed only one withholding allowance. You should:

A) repay the overwithheld taxes on Arch's next payday.
B) tell Arch that you will spread out a refund of the overwithheld taxes equally over the next six pays.
C) inform Arch that you are unable to repay the overwithheld taxes that were withheld before March 8 and that the adjustment will have to be made when he files his annual income tax return.
D) tell Arch to write the IRS immediately and ask for a refund of the overwithheld taxes.
E) inform Arch that you will appoint a committee to study his request.

Question 49

Which of the following forms is used to report rents paid over $600 to landlords?

A) Form 1099-R
B) Form 1099-INT
C) Form 1099-MISC
D) Form 1099-G
E) Form 8027

Question 50

Exhibit 4-1 : Use the following tables to calculate your answers.   Refer to Exhibit 4-1 . Calculate the amount to withhold from the following employees using the biweekly table of the percentage method.

Question 51

All of the following are properly defined as wages subject to the withholding of federal income taxes except :

A) a year-end bonus.
B) kitchen appliances given by manufacturer in lieu of cash wages.
C) dismissal payment.
D) vacation pay.
E) payments made under workers' compensation law.

Question 52

Not-for-profit corporations that are exempt from federal income taxes do not withhold federal income taxes from their employee's pay.

Question 53

Which of the following forms is used to report the amount of distributions from pension and retirement plans?

A) Form W-2c
B) Form 1099-R
C) Form 1099-PEN
D) Form W-3p
E) Form W-4

Question 54

An employer must file an information return under all of the following conditions except :

A) to report $1,000 of compensation paid to an individual who is not an employee.
B) to report the wages totaling $600 paid to an independent contractor during the calendar year.
C) to report dividends totaling $600 paid to an individual during the calendar year.
D) to report commissions of $500 paid to a self-employed salesman.
E) An information return must be filed under each of the above conditions.

Question 55

Exhibit 4-1 : Use the following tables to calculate your answers.  
Refer to Exhibit 4-1. Use the appropriate table to determine the amount to withhold for federal income tax from each of the following biweekly wages (biweekly withholding allowance = $161.50):
 

Question 56

Which of the following cannot be included in a cafeteria plan?

A) Health insurance
B) Group-term life insurance (first $50,000 of coverage)
C) Dependent care assistance (first $5,000)
D) Self-insured medical reimbursement plan
E) Educational assistance

Question 57

To curb the practice of employees filing false Forms W-4, the IRS requires that an employer submit to the agency a copy of each Form W-4:

A) the IRS has requested in writing.
B) on which an employee, usually earning $180 each week at the time Form W-4 was filed, now claims to be exempt from withholding.
C) on which an employee claims to be single but has 9 withholding allowances.
D) on which a married employee claims no withholding allowances.
E) on which a recently divorced employee claims 5 withholding allowances and authorizes an additional $10 to be withheld each week.

Question 58

Beech refuses to state her marital status on Form W-4 which she gave to you, the payroll manager, when she was hired. You should:

A) tell Beech that it is OK since you know that she was recently divorced and is reluctant to talk about it.
B) inform Beech that she will have to write the IRS and give her reasons for refusing to state her marital status.
C) tell Beech that you will have to withhold income taxes as if she were married and had claimed one allowance.
D) tell Beech that you will have to withhold income taxes according to the withholding table for a single employee with no allowances.
E) advise Beech to write "It is no business of yours." in the margin of her Form W-4.

Question 59

Which of the following statements is false regarding an employee's contribution into a 401(k) tax deferred retirement account?

A) Upon retirement, the employee will receive their contributions back in the form of regular payments.
B) The employee may be in a lower tax bracket when the retirement income is  taxed.
C) Upon retirement, payments are then subject to federal income tax.
D) The employee's contributions are not subject to FICA tax.
E) None of the above statements is correct.

Question 60

Exhibit 4-1 : Use the following tables to calculate your answers.   Refer to Exhibit 4-1 . Determine the income tax to withhold from the biweekly wages of the following employees (wage-bracket):

Question 61

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

Question 62

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

Question 63

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

Question 64

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

Question 65

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

Question 66

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

Question 67

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.

Question 68

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

Question 69

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

Question 70

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.

Question 71

Contributions made by the employer into employees' health savings accounts are excluded from the employee's taxable income.

Question 72

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

Question 73

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).

Question 74

In the IRA form of a simple retirement account, employer's can contribute as much as they want into the employee's simple retirement account, even though the employee's contribution is limited to $13,000.

Question 75

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

Question 76

Employers cannot send Forms W-2 to employees electronically.

Question 77

Employees who are receiving over $1 million dollars in supplemental wages for the year will have a 37% withholding rate apply to the supplemental payments in excess of $1 million dollars.

Question 78

Employee's 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.

Question 79

A worker with three employers should always claim at least one withholding allowance with each employer.

Question 80

An employee filed a Form W-4 and claimed 22 withholding allowances. The employer should withhold 22% of the worker's gross earnings for federal income taxes until the form W-4 is approved by the IRS.