NOTE: In the following problems, use the net FUTA tax rate of 0.6% on the first
$7,000 of taxable wages.a. Complete Part 2 of Form 940 based on the following
information:
b. If the employer is located in North Carolina which has a FUTA credit reduction of
1.2%, what would be the amount of the credit reduction?
c. Complete Part 5 of Form 940 given the breakdown of FUTA taxable wages for the
year to be:
FICA Taxes PayableOASDI is a liability account debited for the employers portion of
the FICA tax.
Under the FLSA enterprise coverage test, hospitals and nursing homes are only covered
if their annual charges for services are at least $500,000.
Educational assistance payments made to workers to improve skills required of their
jobs are nontaxable for unemployment purposes.
An employees marital status and number of withholding allowances never appear on
the payroll register.
The FLSA provides health insurance for the aged and disabled
(Medicare).
In most states, the contribution reports and the wage information reports are filed
quarterly.
The Federal Insurance Contributions Act levies a tax upon the gross earnings of
self-employed persons.
Under the continental system of recording time, 9:00 a.m. is recorded as 900 while 9:00
p.m. is recorded as 2100.
Under individual employee coverage, the worker is covered by the FLSA if:
a. the worker produces goods for interstate commerce.
b. the worker is a housekeeper in a private home for 16 hours a week.
c. the domestic receives cash wages of at least $1,900 from the
employer in the calendar year.
d. all of the above.
e. none of the above.
NOTE: In all problems, unless instructed otherwise, compute the hourly and overtime
rates as follows:
1) Carry the hourly rate and the overtime rate to 3 decimal places and then round off to
2 decimal places (round the hourly rate to 2 decimal places before multiplying by one
and one-half to determine the overtime rate).
2) If the third decimal place is 5 or more, round to the next higher cent.
3) If the third decimal place is less than 5, drop the third decimal place. Also, use the
minimum hourly wage of $7.25 in solving these problems and all that follow. Abel
works a 37½-hour week at $10.75 an hour. Overtime hours are paid at 1½ times the
regular rate.
(a) Abels regular weekly earnings are (37½ × $10.75)
(b) Abels overtime rate is ($10.75 × 1.5)
(c) Abel works 6 hours overtime during one week.
Abels weekly gross earnings are [$403.13 + (6 × $16.13)]
Voluntary contributions to a states unemployment department are:
a. allowed in all states.
b. designed to increase an employers reserve account in order to lower the employers
contribution rate.
c. capable of being paid at any time with no time limit.
d. returned to the employer at the end of the following year.
e. sent directly to the IRS.
FICA defines all of the following as wages except:
a. year-end bonuses.
b. standby payments.
c. total cash tips of $15 received by a tipped employee in May.
d. employees social security taxes paid for by the employer.
e. first six months of sick pay.
Note: Use the tables on the following pages to calculate the answers to the problems
listed.
Source: Internal Revenue Service.
Use the appropriate table to determine the amount to withhold for federal income tax
from each of the following biweekly wages (biweekly withholding allowance =
$153.80):
(a) Patrick Patrone (single, 2 allowances), $925 wages
Carson Leno (married, 4 allowances), $1,195 wages
Carli Lintz (single, 0 allowances), $700 wages
(b) Gene Hartz (single, 1 allowance), $2,500 wages
(c) Mollie Parmer (married, 2 allowances), $3,600 wages
NOTE: In the following problems, use the net FUTA tax rate of 0.6% on the first
$7,000 of taxable wages.
Queno Company had FUTA taxable wages of $510,900 during the year.
Determine its:
(a) gross FUTA tax
(b) FUTA tax credits (assuming no penalties)
(c) net FUTA tax
If an employer is unable to obtain a certificate of age or a work permit for a minor
employee, the employer may rely upon what document as evidence of age?
a. Baptism record
b. Mothers statement as to date of birth
c. High school enrollment form showing date of birth
d. Minor employees statement as to date of birth
e. None of the above
Which of the following records lists all employees who earn remuneration, the amount
of remuneration, the deductions, and the net amount paid for each payroll period?
a. Employee history record
b. Payroll register
c. Change in payroll rate form
d. Reference inquiry form
e. None of the above
All interns in the for-profit sector are exempt from the minimum wage and overtime
requirements of the FLSA.
A stated percentage of revenue paid an employee who transacts a piece of business or
performs a service is called:
a. a piece rate.
b. a commission.
c. a regular hourly rate.
d. a remunerative salary.
e. none of the above.
A traveling salesperson who solicits and transmits to the principal orders for
merchandise for resale is considered an employee under FUTA.
Which of the following accounts is an expense account in which an employer records
the FICA, FUTA, and SUTA taxes?
a. Wages Expense
b. Payroll Taxes
c. SUTA Taxes Payable
d. Salaries Payable
e. None of the above
NOTE: In the following problems, use the net FUTA tax rate of 0.6% on the first
$7,000 of taxable wages.
Stys Companys payroll for the year is $1,210,930. Of this amount, $510,710 is for
wages paid in excess of $7,000 to each individual employee. The SUTA tax rate for the
company is 3.2% on the first $7,000 of each employees earnings.
(a) The amount of FUTA tax for the year
(b) The amount of SUTA tax for the year
An aspect of the interstate reciprocal arrangement concerns:
a. the status of Americans working overseas.
b. the taxability of dismissal payments.
c. the determination of an employers experience rating.
d. the transfer of an employee from one state to another during the year.
e. none of the above.
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
In recording the monthly adjusting entry for accrued wages at the end of the accounting
period, the amount of the adjustment would usually be determined by:
a. collecting the timesheets for the days accrued.
b. using the same amount as the prior months adjustment.
c. using the wages of the salaried workers only.
d. a percentage of the previous weeks gross payroll.
e. a percentage of the previous weeks net payroll.
All of the following are properly defined as wages subject to the withholding of federal
income taxes except:
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.
NOTE: In this chapter and in all succeeding work throughout the course, unless
instructed otherwise, use the following rates, ceiling, and maximum taxes.
For rounding rules refer to page 2-33.
*Employee HI: Plus an additional 0.9% on wages over $200,000. Also applicable to
self-employed.
On the last weekly pay of the first quarter, Lorenz is paid her current pay of $90 per day
for four days worked and one day sick pay (total
$450). She is also paid her first-quarter commission of $1,200 in this pay. How much
will be deducted for:
(a) OASDI tax?
(b) HI tax?
The tips received by a tipped employee are less than $5.12 of the minimum hourly tip
credit rate. The maximum permissible tip credit is:
a. $30 a month.
b. $5.12 an hour.
c. 45% of the employees minimum wage.
d. 50% of the employees minimum wage.
e. the amount of tips actually received by the employee.
Arch gives you an amended Form W-4 dated March 11, 2016, on which he claims two
additional withholding allowances. He asks you to refund the excess taxes that were
deducted from January 1 to March 11 when Arch claimed only one withholding
allowance. You should:
a. repay the overwithheld taxes on Archs 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 11 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.
Which of the following types of payments are not taxable wages for federal
unemployment tax?
a. Retirement pay
b. Cash prizes and awards for doing outstanding work
c. Dismissal pay
d. Bonuses as remuneration for services
e. Payment under a guaranteed annual wage plan
Which of the following payments are not taxable for FICA?
a. Back-pay awards.
b. Wage supplements to cover difference between employees salaries and their military
pay.
c. Dismissal pay.
d. Difference between employees regular wages and the amount received for jury duty.
e. Retroactive wage increase.
Which of the following forms is used to notify the Payroll Department to add a new
employee to the payroll?
a. Employees earnings record
b. Change in payroll rate form
c. Reference inquiry form
d. Hiring notice
e. None of the above
Which of the following statements does not describe an employees FICA taxes and
withholdings?
a. The employees taxes are collected by the employer and paid to the IRS along with
the employers taxes.
b. The employees taxes are deducted from the employees wages at the time of payment.
c. The employees liability for the FICA taxes continues even after the employer has
withheld them.
d. The amount of tax to be withheld is computed by multiplying the employees taxable
wages by the current tax rate.
e. The employee is entitled to a refund for overpayment of FICA taxes resulting from
having worked for more than one employer.
Which of the following acts levies a tax on employers and employees that is credited to
the Federal Old-Age and Survivors Trust Fund and the Federal Disability Insurance
Trust Fund?
a. Federal Income Tax Act
b. Federal Insurance Contributions Act
c. Fair Labor Standards Act
d. Federal Unemployment Tax Act
e. Employee Retirement Income Security Act
Under enterprise coverage, all employees of a business are covered by the FLSA if the
organization is:
a. a nursing home.
b. a public agency.
c. a hospital.
d. all of the above.
e. none of the above.
A worker hired by the federal government in 2016 is covered under FICA.
When making a payment of FUTA taxes, the employer must make the deposit by the:
a. end of the month after the quarter.
b. 15th of the month after the quarter.
c. 10th of the month after the quarter.
d. end of the following quarter.
e. same day of the FICA and FIT deposits.
Which of the following acts deals with the minimum wage paid to laborers for
contractors on federal government construction contracts?
a. Walsh-Healey Public Contracts Act
b. Fair Labor Standards Act
c. McNamara-OHara Service Contract Act
d. Occupational Safety and Health Act
e. None of the above
Which of these accounts shows the total gross earnings that the employer incurs as an
expense each payday?
a. Payroll Taxes
b. Federal Income Taxes Payable
c. Wages Expense
d. Salaries Payable
e. None of the above
The OASDI taxable wage base is correctly defined as:
a. all amounts earned by an employee during a calendar year.
b. the maximum amount of wages during a calendar year that is subject to the OASDI
tax.
c. all amounts paid an employee during a calendar year.
d. all amounts either earned by, or paid to, an employee during a calendar year.
e. none of the above.
ERISA provides for full vesting of the employers contribution to an employees pension
fund in three years or gradually over:
a. ten years.
b. five years.
c. six years.
d. seven years.
e. No gradual vesting is allowed.
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 re- ported 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.
NOTE: In all problems, unless instructed otherwise, compute the hourly and overtime
rates as follows:
1) Carry the hourly rate and the overtime rate to 3 decimal places and then round off to
2 decimal places (round the hourly rate to 2 decimal places before multiplying by one
and one-half to determine the overtime rate).
2) If the third decimal place is 5 or more, round to the next higher cent.
3) If the third decimal place is less than 5, drop the third decimal place.
Also, use the minimum hourly wage of $7.25 in solving these problems and all that
follow. Kerr receives an annual $25,700 base salary for working the territory in
Arizona. A quota of $900,000 in sales has been set for that state. Kerr receives an 8%
commission on all sales in excess of $900,000. This year, the sales are $965,000.
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.
Monthly depositors are required to deposit their taxes by the 15th day of the following
month.
Employees must be given Form W-2 on or before January 31 following the close of the
calendar year.
Dumping is legal in all but a few states.
Every employer is entitled to a 5.4 percent credit against the gross FUTA tax of 6.0
percent.
Deductions from gross pay in the payroll register are reflected on the credit side of the
journal entry to record the payroll.
Under the Family and Medical Leave Act, employers can exempt an employee who has
not worked for the employer for at least 1 year and has worked for the company at least
1,250 hours in the last year.
Employers are now required to photocopy new employees Form I-9 documents.
If an employer fails to file an employment tax return on the due date, a penalty based on
a certain percentage of the amount of tax required to be reported may be added to the
tax.
NOTE: In the following problems, use the net FUTA tax rate of 0.6% on the first
$7,000 of taxable wages. In the first quarter of the year, Henry Gibson earned $3,000 in
wages and reported $2,400 in tips to his employer. How much would the employers
FUTA tax be for the first quarter on Gibson?
Amounts withheld from employees wages for health insurance are credited to a liability
account.
Companies usually provide a separate column in the payroll register to record the
employers payroll taxes.
Employers who fail to file employment tax returns are subject to both civil and criminal
penalties.
Note: Use the tables on the following pages to calculate the answers to the problems
listed.
Source: Internal Revenue Service.
Ted Duerson, previously unemployed for the calendar year, earned $13,200 during the
biweekly period from September 20 to October 1 (20th payroll period). He has made a
written request for the part-year employment method of withholding. If Duerson is
married and claims zero withholding allowances, how much FIT tax would be withheld
from his gross pay using the part-year employment method (using the wage-bracket
table)?
Exempt professional employees are exempt from all provisions of the FLSAminimum
wages, overtime pay, and equal pay.
Noncash items given to household employees by their employers are subject to FICA
tax.