Chapter 4
1. Before any federal income taxes may be withheld, there must be, or must have been, an employer-employee
relationship.
a.
True
b.
False
True
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2. Since not-for-profit corporations are exempt from federal income taxes, they are not defined as employers under the
federal income tax withholding law.
a.
True
b.
False
3. Under the federal income tax withholding law, a definition of employee excludes partners.
a.
True
b.
False
True
1
4. The amount of federal income taxes to be withheld is determined after subtracting from the employee’s gross wages any
local and state taxes.
a.
True
b.
False
5. 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.
a.
True
b.
False
True
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6. Noncash fringe benefits that are provided employees are treated as nontaxable income and thus are excluded from
federal income tax withholding.
a.
True
b.
False
7. 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.
a.
True
b.
False
8. 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.
a.
True
b.
False
True
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9. 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.
a.
True
b.
False
True
1
10. 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.
a.
True
b.
False
True
1
11. 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.
a.
True
b.
False
12. There is no limit to the amount of educational assistance that is exempt from federal income tax withholdings.
a.
True
b.
False
13. The payments to a cook employed by a college fraternity are excluded from federal income tax withholding.
a.
True
b.
False
True
1
14. There is no limit to the amount that an employer can contribute in an employee’s SIMPLE retirement account.
a.
True
b.
False
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15. 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.
a.
True
b.
False
16. Persons eligible for deductible IRA contributions may put aside a specified amount of their compensation without
paying federal income taxes on that amount.
a.
True
b.
False
True
1
17. The IRA format of the SIMPLE plan allows employees to make tax-free contributions of up to $12,500
a.
True
b.
False
True
1
18. In the IRA form of the Simple Retirement Account, employers must match the employee’s contribution, dollar-for-
dollar, up to 3% of the employee’s compensation.
a.
True
b.
False
True
1
19. 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.
a.
True
b.
False
20. 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.
a.
True
b.
False
21. 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.
a.
True
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Chapter 4
b.
False
True
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22. The special withholding allowance may be claimed only by those employees who do not itemize deductions on their
income tax returns.
a.
True
b.
False
23. Gere became the father of triplets on May 21. He must file an amended Form W-4 on or before May 31.
a.
True
b.
False
24. On August 1, 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 3.
a.
True
b.
False
25. A person holding two jobs may have additional income tax withheld by increasing the number of withholding
allowances claimed.
a.
True
b.
False
26. 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.
a.
True
b.
False
True
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27. 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.
a.
True
b.
False
28. By completing Form W-4P, a person can elect to have no income tax withheld from the annuity amounts the person
Chapter 4
receives.
a.
True
b.
False
True
1
29. Of the two main methods of withholding, only the wage-bracket method distinguishes unmarried persons from
married persons.
a.
True
b.
False
30. The standard deduction varies according to whether the wage-bracket method or the percentage method is used.
a.
True
b.
False
31. 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.
a.
True
b.
False
32. In calculating a “gross-up” amount of a bonus payment, an employer does not use the OASDI/HI tax rates in the
formula.
a.
True
b.
False
33. Employees must be given Form W-2 on or before January 31 following the close of the calendar year.
a.
True
b.
False
True
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34. Form W-3 is filed with the Social Security Administration when transmitting information returns on Forms W-2.
a.
True
b.
False
True
1
35. If you, an employer, are filing 550 Forms W-2, you must use electronic filing rather than paper Forms W-2.
Chapter 4
a.
True
b.
False
True
1
36. For state income tax purposes, all states treat 401(k) plan payroll deductions as nontaxable.
a.
True
b.
False
37. 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
a
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38. 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.
e
1
39. 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
b
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40. 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,
Chapter 4
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.
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41. 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 worker’s compensation law.
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42. 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
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43. A personal allowance:
a.
amounted to $2,000 in 2018.
b.
may be claimed to exempt a portion of the employee’s earnings from withholding.
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.
b
1
44. 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.
d
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45. Arch gives you an amended Form W-4 dated March 9, 2018 on which he claims two additional withholding
Chapter 4
allowances. He asks you to refund the excess taxes that were deducted from January 1 to March 9 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 9 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.
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46. 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.
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47. 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
b
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48. 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.
d
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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
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d.
Form 1099-G
e.
Form 8027
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50. 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.
d
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Exhibit 4-1:
Use the following tables to calculate your answers.
Chapter 4
Chapter 4
51. Refer to Exhibit 4-1. Determine the income tax to withhold from the biweekly wages of the following employees
(wage-bracket):
Karen Overton (single, 0 allowances), $900 wages
__________________
Nancy Haller (married, 4 allowances), $1,000 wages
__________________
Alan Glasgow (married, 1 allowance), $980 wages
__________________
Joseph Kerr (single, 4 allowances), $720 wages
__________________
Ginni Lorenz (single, 1 allowance), $580 wages
__________________
52. 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.)
53. 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) ________________
54. 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)?
55. Refer to Exhibit 4-1. Calculate the amount to withhold from the following employees using the biweekly table of the
percentage method.
Kenneth Karcher (single, 1 allowance = $155.80), $895 wages
__________
Mary Kenny (married, 2 allowances = $311.60), $1,900 wages
__________
Thomas Carney (single, 0 allowances), $1,460 wages
__________
56. 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 = $155.80):
Patrick Patrone (single, 2 allowances), $925 wages
__________
Carson Leno (married, 4 allowances), $1,195 wages
__________
Carli Lintz (single, 0 allowances), $700 wages
__________
Gene Hartz (single, 1 allowance), $2,500 wages
__________
Mollie Parmer (married, 2 allowances), $3,600 wages
__________