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Chapter 3
1. The Federal Insurance Contributions Act levies a tax upon the gross earnings of self-employed persons.
a.
True
b.
False
2. FICA includes partnerships in its definition of employer.
a.
True
b.
False
3. In its definition of employee, FICA clearly distinguishes between classes or grades of employees.
a.
True
b.
False
4. The highest paid executives of a firm are excluded from coverage under the Federal Insurance Contributions Act
(FICA).
a.
True
b.
False
5. A worker hired by the federal government in 2018 is covered under FICA.
a.
True
b.
False
6. Employees of a state government hired before January 1, 1986, and covered by a public retirement plan, are exempt
from FICA coverage.
a.
True
b.
False
7. Peter, age 17 and employed by his family-owned corporation, is covered under FICA.
a.
True
b.
False
8. Employers do not pay payroll taxes on payments made to independent contractors.
a.
True
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b.
False
9. Severance pay is considered taxable wages under FICA.
a.
True
b.
False
10. Under FICA only, cash tips of more than $100 in a month are defined as taxable wages.
a.
True
b.
False
11. Employees may use Form 4070 to report the amount of their tips to their employers.
a.
True
b.
False
12. FICA does not consider the first six months of sick pay as taxable wages.
a.
True
b.
False
13. In computing their own FICA taxes, employers may exclude the total amount of tips reported to them by their tipped
employees.
a.
True
b.
False
14. FICA defines wages as including the cash value of meals provided for the convenience of the employees.
a.
True
b.
False
15. Payments made to a worker's spouse for hospital expenses in connection with an accident disability are not considered
wages under FICA.
a.
True
b.
False
16. Employer payments made directly to employees in lieu of health insurance coverage are taxable wages.
a.
True
b.
False
17. Exempt educational assistance includes payments for tools that employees keep after they complete a course of
instruction.
a.
True
b.
False
18. Each year, the FICA (OASDI portion) taxable wage base is automatically adjusted whenever a cost of living raise in
social security benefits becomes available.
a.
True
b.
False
19. The FICA tax rates and taxable wage bases are exactly the same for the employee and employer when the employee
makes $200,000 or less.
a.
True
b.
False
20. Employees are liable for their FICA taxes only until the taxes have been collected from their pay by their employer.
a.
True
b.
False
21. OASDI taxes are levied when the wages are earned by, rather than when paid to, employees.
a.
True
b.
False
22. If an employee, who works two or more separate jobs, pays OASDI taxes on wages in excess of the taxable wage
base, the employee is entitled to a refund of the overpayment.
a.
True
b.
False
23. Under SECA, all of an individual's self-employment income is counted in determining the HI tax.
a.
True
b.
False
24. Self-employed persons include their self-employment taxes in their quarterly payment of estimated federal income
taxes.
a.
True
b.
False
25. All employers of one or more persons must file an application for an identification number.
a.
True
b.
False
26. The Social Security Act does not require self-employed persons to have an account number.
a.
True
b.
False
27. The Social Security Act requires workers to obtain a new account number each time they change jobs.
a.
True
b.
False
28. Nonagricultural employers who withhold income taxes and are liable for social security taxes must file a monthly tax
and information return.
a.
True
b.
False
29. The requirements for depositing FICA taxes and income taxes withheld from nonagricultural employees' wages vary
according to the amount of such taxes reported during a "lookback period."
a.
True
b.
False
30. State and local government employers must make their tax deposits according to a different schedule than private
employers.
a.
True
b.
False
31. A monthly depositor is one who reported employment taxes of $50,000 or more for the four quarters in the lookback
period.
a.
True
b.
False
32. Monthly depositors are required to deposit their taxes by the 15th day of the following month.
a.
True
b.
False
33. The employees of a semiweekly depositor are paid every Tuesday. The accumulated payroll taxes must be deposited
on or before the following Friday.
a.
True
b.
False
34. An employer's social security and withheld income taxes for the quarter are less than $2,500. The employer must
deposit the taxes at its bank at the time of filing the fourth quarter Form 941.
a.
True
b.
False
35. If the accumulated employment taxes during a quarter are less than $2,500, no deposits are required.
a.
True
b.
False
36. Under the safe harbor rule, when employers deposit their tax liabilities, they may have a shortfall of no more than
$200 without incurring any penalty.
a.
True
b.
False
37. Noncash items given to household employees by their employers are subject to FICA tax.
a.
True
b.
False
38. Businesses with $2,500 or less in quarterly tax liabilities can pay the taxes when they file Form 941.
a.
True
b.
False
39. Form 941 is used by employers to make their quarterly return of FICA taxes and withheld income taxes.
a.
True
b.
False
40. On Schedule B of Form 941, the employer does not show the date of each tax deposit during the quarter.
a.
True
b.
False
41. Form 941 is due on or before the 15th day of the month following the close of the calendar quarter for which the
return is made.
a.
True
b.
False
42. Employers file Form 941 with the IRS center of the region in which the employer's principal place of business is
located.
a.
True
b.
False
43. Form 944 (annual form) can be used by all new employers instead of Form 941.
a.
True
b.
False
44. Employers who fail to file employment tax returns are subject to both civil and criminal penalties.
a.
True
b.
False
45. 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.
a.
True
b.
False
46. The taxes imposed under the Social Security Act consist of:
a.
two taxes on employers.
b.
two taxes on employees.
c.
OASDI and HI taxes.
d.
taxes on the net earnings of the self-employed.
e.
all of the above.
47. FICA defines all of the following as employees except:
a.
vice presidents.
b.
partners.
c.
superintendents.
d.
full-time life insurance salespersons.
e.
payroll managers.
48. FICA excludes from coverage all of the following kinds of employment except:
a.
domestic service performed in a college sorority by a student.
b.
service performed by a 16-year-old child in the employ of the mother.
c.
babysitting service performed by a 35-year-old person who receives $40 in cash during the calendar quarter.
d.
federal government secretaries hired in 1990.
e.
services performed by a railroad worker for an employer covered by the Railroad Retirement Tax Act.
49. 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.
Chapter 3
e.
first six months of sick pay.
50. Each of the following items is accurately defined under FICA as taxable wages except:
a.
value of meals furnished employees for the employer's convenience.
b.
value of meals furnished employees for the employees' convenience.
c.
commissions.
d.
severance pay.
e.
$500 award for productivity improvement suggestion.
51. 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.
Severance pay.
d.
Difference between employees’ regular wages and the amount received for jury duty.
e.
Retroactive wage increase.
52. 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.
53. Which of the following statements does not describe an employee's FICA taxes and withholdings?
a.
The employee’s taxes are collected by the employer and paid to the IRS along with the employer’s taxes.
b.
The employee's taxes are deducted from the employee's wages at the time of payment.
c.
The employee's 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 employee's 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.
54. The FICA tax rates for the self-employed are:
a.
6.2% (OASDI) and 1.45% (HI).
b.
12.4% (OASDI) and 1.45% (HI).
Chapter 3
c.
6.2% (OASDI) and 2.9% (HI).
d.
10.0% (OASDI) and 1.0% (HI).
e.
none of the above.
55. Which of the following deposit requirements pertains to a monthly depositor who has accumulated employment taxes
of $2,900 at the end of October?
a.
No deposit is required.
b.
The undeposited taxes should be carried over to the end of November.
c.
The taxes must be deposited on or before November 15.
d.
The taxes must be deposited on or before the next banking day.
e.
None of the above.
56. Which of the following deposit requirements pertains to a semiweekly depositor who has accumulated employment
taxes of $17,500 on payday, Saturday, May 16, 20--?
a.
No deposit is required until May 18, the next banking day.
b.
The undeposited taxes should be carried over to the next payday on May 23.
c.
The taxes must be deposited on or before Tuesday, May 19.
d.
The taxes must be deposited on or before Friday, May 22.
e.
None of the above.
57. To be designated a semiweekly depositor, how much in employment taxes would an employer have reported for the
four quarters in the lookback period?
a.
More than $50,000.
b.
More than $100,000.
c.
Less than $50,000.
d.
More than $2,500.
e.
None of the above.
58. Which of the following deposit requirements pertains to a nonagricultural employer who has employer FICA taxes
and withheld employee FICA taxes and income taxes of $125,000 at the end of payday on Friday, August 14, 20--?
a.
No deposit is required until Tuesday, August 18.
b.
The taxes must be deposited by the close of the next banking day.
c.
The taxes must be deposited on or before August 31.
d.
The undeposited taxes should be carried over to the end of September.
e.
None of the above.
2018. The latest date on which Ashe may file Form 941 is:
a.
April 10.
b.
April 30.
c.
May 1.
d.
May 10.
e.
May 15.
60. Barr fails to make a timely deposit of FICA taxes and withheld income taxes until five days after the due date. The
penalty facing Barr is:
a.
2% of the undeposited taxes.
b.
5% of the undeposited taxes.
c.
10% of the undeposited taxes.
d.
25% of the undeposited taxes.
e.
none of the above.
Instruction 3-1
Use the following tax rates, ceiling and maximum taxes:
Employee and Employer OASDI: 6.20% $127,200 $7,886.40
Employee* and Employer HI: 1.45% No limit No maximum
Self-employed OASDI: 12.4% $127,200 $15,772.80
Self-employed HI: 2.9% No limit No maximum
*Employee HI: Plus an additional 0.9% on wages over $200,000. Also applicable to self-employed.
Rounding Rules: Unless instructed otherwise compute hourly rate and overtime rates as follows:
1. Carry the hourly rate and the overtime rate to 3 decimal places and then round off to 2 decimals 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.
61. Refer to Instruction 3-1. Crow earned $585.15 during the week ended March 1, 20--. Prior to payday, Crow had
cumulative gross earnings of $4,733.20.
a)
The amount of OASDI taxes to withhold from Crow's pay is __________.
b)
The amount of HI taxes to withhold from Crow's pay is __________.
Chapter 3
62. Refer to Instruction 3-1. Dee is paid $2,345 on November 8, 20--. Dee had cumulative gross earnings, including
overtime pay, of $125,900 prior to this pay.
a)
The amount of OASDI taxes to withhold from Dee's pay is __________.
b)
The amount of HI taxes to withhold from Dee's pay is __________.
63. Refer to Instruction 3-1. Beginning with the first pay of the year, Carson will make $2,700 each week. In which
numbered pay of the year will Carson hit the OASDI taxable limit?
64. Refer to Instruction 3-1. 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 __________
65. Refer to Instruction 3-1. Eager, a tipped employee, reported to his employer that he had received $320 in tips during
March. On the next payday, April 6, he was paid his regular salary of $400.
a)
The amount of OASDI taxes to withhold from Eager's pay is __________.
b)
The amount of HI taxes to withhold from Eager's pay is __________.
66. Refer to Instruction 3-1. Fess receives wages totaling $74,500 and has net earnings from self-employment
amounting to $61,300. In determining her taxable self-employment income for the OASDI tax, how much of her net self-
employment earnings must Fess count?
67. Refer to Instruction 3-1. During 20--, Garr was paid a weekly salary of $2,540. The amount of FICA to be withheld
from the following payments is:
OASDI
HI
a)
For the 50th week
__________
__________
b)
For the 51st week
__________
__________
Chapter 3
c)
For the 52nd week
__________
__________
68. Refer to Instruction 3-1. On August 1, Huff (part-time waitress) reported on Form 4070 the cash tips of $158.50 that
she received in July. During August, Huff was paid wages of $550 by her employer. Determine:
OASDI
HI
a)
The amount of social security taxes that the employer
should withhold from Huff's wages during August:
__________
__________
b)
The amount of the employer's social security taxes on
Huff's wages and tips during August:
__________
__________
69. Refer to Instruction 3-1. In this pay, Moss Company deducted OASDI taxes of $5,276.24 and HI taxes of $1,233.95
from the $85,100.90 of taxable wages paid. What is Moss Company's portion of the social security taxes for:
a)
OASDI
b)
HI
70. Refer to Instruction 3-1. Jax Company's (a monthly depositor) tax liability (amount withheld from employees' wages
for federal income tax and FICA tax plus the company's portion of the FICA tax) for July was $1,210. No deposit was
made by the company until August 24, 20--. Determine:
a)
The date by which the deposit should have been made
b)
The penalty for failure to make timely deposit
c)
The penalty for failure to fully pay tax when due
d)
The interest on taxes due and unpaid (assume a 4% interest rate)
71. Refer to Instruction 3-1. Ralston is the sole proprietor of Cut & Curl. During the year, his net earnings were $79,700.
What are his self-employment taxes (OASDI and HI) on these earnings?
72. Lidge Company of Texas (TX) is classified as a monthly depositor and pays its employees monthly. The following
payroll information is for the second quarter of 20--.
WITHHOLDINGS
EMPLOYER'S
Wages
OASDI
HI
FIT
OASDI
HI
April
$86,100
$ 5,338.20
$1,248.46
$ 9,650
$ 5,338.20
$1,248.45
a. Complete the following portion of Form 941.
Chapter 3
Source: Internal Revenue Service
c. Complete Part 2 of Form 941.
Source: Internal Revenue Service
d. What are the payment due dates of each of the monthly liabilities assuming all
Chapter 3
deposits were made on time, and the due date of the filing of Form 941 (year 20--)?
ANSWER:
a.
Line 1
11
Line 2
252000.00
Source: Internal Revenue Service
b.
Line 6
67206.00
Chapter 3
c.
Line 16
Check the box for monthly
Month 1
22823.31
Chapter 3
POINTS:
4
