Chapter 9: Withholding, Estimated Payments, and Payroll Taxes
Key
1. If an employee does not complete a Form W-4, the employer must withhold tax as if the employee were
single with no exemptions.
2. If a husband and wife both work, they must divide their withholding allowances equally on their W-4 Forms.
3. In 2011, the maximum amount of wages subject to the Social Security portion of the FICA tax is $106,800.
4. 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.
5. Individual quarterly estimated tax payments are filed with Form 1040-ES.
6. The original copy of all W-2 Forms and Form W-3 must be filed with the Social Security Administration by
February 28 of the year following the calendar year in which the wages were paid, regardless of the tax year of
the employer.
7. Employees with self-employment income who also have W-2 income may be able to avoid making estimated
tax payments by filing a new Form W-4 and increasing the amount of their withholding.
8. When required, gambling winnings are reported by the gambling establishment on Form 1099-MISC.
9. The FUTA tax for 2011 is based on 6.2 percent of each employee’s wages up to $10,000.
10. A credit against the FUTA tax is available for state unemployment tax paid by the employer.
11. Reimbursements of moving expenses are always subject to withholding.
12. The two most common methods of determining federal income tax withholding are the percentage method
and the wage bracket method.
13. If taxpayers fail to provide their bank with an identification number, they are subject to backup withholding
on interest payments.
14. 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.
15. 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.
16. Employer deposits of withheld taxes may be made to any bank.
17. Gambling winnings must be reported to the IRS, but withholding of taxes on winnings is never required.
18. For 2011, the maximum base amount for computing the Medicare portion of the self-employment tax is
$135,000.
19. Employers must provide employees with their Form W-2s by February 15th of the year following the
calendar year of payment of the wages.
20. The FUTA tax is a voluntary unemployment tax which an employer may or may not wish to contribute
21. Taxpayers with large amounts of deductions may claim extra withholding allowances on their Form W-4s.
22. When taxpayers overpay FICA taxes, the excess taxes may be claimed as a credit against their tax liability.
23. Dividend income is not subject to the self-employment tax.
24. A nondeductible penalty is imposed on underpayments of estimated taxes.
25. In determining an employee’s FICA tax to be withheld, the maximum amount of wages subject to FICA
must be reduced by the taxpayer’s self-employment earnings.
26. Household employers are not required to pay FICA taxes on cash payments of less than $1,700 paid to any
household employee in a calendar year.
27. Household employers are not required to pay FICA taxes on part-time household employees.
28. For 2011, the Social Security portion of the FICA tax is imposed at a rate of:
A. 6.2 percent for the employee and 7.65 percent for the employer
29. For 2011, the maximum base for the Social Security portion of the FICA tax is:
30. Dividends paid to a shareholder by a corporation should be reported on which of the following forms?
31. 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
32. Oliver has two employees who earned the following amounts during 2011:
June
$17,000
Eric (before July 1, 2011)
5,000
If Oliver timely pays 5.4 percent for state unemployment tax, what is the amount of his 2011 FUTA after the state tax credit?
A. $0
33. 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?
34. Which of the following forms should be used by a company to report a payment of $1,500 to a computer
consultant who is not an employee of the company?
35. Which of the following items may be subject to the self-employment tax?
36. In 2011, 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 $3,000 during the first 6 months
of the year. 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 2011?
A. $136
37. In 2011, 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 $3,000. 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 2011, after the credit for state unemployment taxes?
38. Elwin worked at three jobs during 2011. 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?
39. Elwin worked at three jobs during 2011. He earned $30,000, $27,000, and $9,000 respectively from the
jobs. What amount can Elwin apply as a credit against his 2011 income tax liability for overpayment of FICA
taxes?
E. None of the above
40. The Form 1099-DIV is an information return used to show the payment of:
A. Distributions from a partnership
41. 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. Assuming that Mary is unemployed, how many allowances should Gordon claim
on his Form W-4, assuming no extra allowances for deductions or adjustments?
42. The FUTA tax is paid by:
43. Which of the following types of income is subject to the self-employment tax?
44. 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.
45. Which of the following forms is used by an employer to report quarterly wages and federal payroll tax
withholdings and deposits?
46. 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.
47. Which of the following amounts paid by an employer to an employee is not subject to withholding?
48. Mark the incorrect answer. In completing W-4s, employees may claim extra allowances:
49. Payors are not required to use backup withholding if:
50. Mark the incorrect answer. Estimated income tax payments
51. Mark the correct answer. FICA taxes are:
52. Mark the correct answer. Self-employment taxes:
53. Steve is a single man who lives by himself. He has one job as a computer tech. How many withholding
allowances can he claim?
54. Which of the following taxpayers are not required to make estimated payments?
55. Redford’s salary was $123,000 in 2011. What would his total combined FICA tax (OASDI & Medicare)
withheld from his salary be for the year?
56. Which one of the following payroll tax deposit schedules is not a rule that applies for a class of employers?
57. Which one of the following forms must an employer provide to his employee by January 31 of the following
year?
58. George has four employees who earned $75,000, $27,000, $2,100, and $6,200 within the first 6 months of
2011 respectively. How much FUTA tax will George owe for the four employees?
59. A taxpayer would be required to pay Social Security and Medicare taxes for a domestic employee in all but
one of the following situations. In which situation would this not be required?
60. Janet is single and claims two allowances on her Form W-4. Her salary is $1,800 per month.
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.
61. The Foemina Corporation has two employees, Nancy and Penny.
a.
If Nancy earns wages of $17,000 for 2011, calculate the total amount of the FICA tax that must be paid:
by Nancy
by Foemina Corporation
Total
b.
If Penny earns wages of $110,000 for 2011, calculate the total amount of the FICA tax that must be paid:
by Penny
by Foemina Corporation
Total
by Nancy
by Foemina
Total
by Penny
by Foemina
Total
62. Emily is a self-employed attorney during 2011.
a.
Assuming that Emily earns $20,000 from her practice, calculate the total amount of her self-employment tax liability for 2011.
b.
Assuming that Emily earns $120,000 from her practice, calculate the total amount of her self-employment tax liability for 2011.
a.
using the net earnings after reduction by one-half of the self-employment tax ($110,820) since there is no maximum base amount for 2011.
a.
63. For 2011, 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 2010 return. To avoid a penalty for underpayment of estimated taxes,
what is the minimum amount of total estimated tax that Randy must pay in 2011? Assume the payments are
made on a timely basis.
64. 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.
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.
Payments from an IRA account
a.
b.
c.
d.
e.
65. Mike is a single taxpayer. For the payroll period of November 2011, he is paid wages of $3,400, monthly.
Mike claims three allowances on his Form W-4.
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.
a.
b.
66. Mary is self-employed for 2011. Mary estimates her required annual estimated tax payment for 2011 to be
$4,000. Mary had a $500 overpayment of last year’s taxes which she will apply against her first quarter
estimated payment.
a.
How much should Mary pay with her first quarter estimated tax voucher?
b.
When is the payment due?
67. Mark has two jobs during 2011. One employer withheld and paid FICA taxes on $64,500 of Mark’s salary
and the other employer withheld and paid FICA taxes on $46,000 in salary paid to Mark. Calculate the amount
of Mark’s credit for the overpayment of FICA taxes that he should claim on his 2011 Form 1040.
68. Lucinda is a self-employed veterinarian in 2011. Her Schedule C net earnings are $89,000 for the
year. Calculate the total amount of Lucinda’s self-employment tax liability for 2011.
69. Sally is an employer with one employee, Sara. Sara earned $12,000 from January 1, 2011 through June 30,
2011, 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 2011?
a.
b.
a.
70. 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.
71. Richard is employed by a major defense contractor and earns $156,000 in 2011. 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
72. In 2011, Lew earned $384,828.
a. What is the amount of Social Security tax withheld from his salary?
b. What is the amount of Medicare tax withheld from his salary?
73. Tom had net earnings of $80,000 from the plant nursery he owns. What is his liability for FICA taxes on his
earnings?
74. 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.
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?
75. What is the purpose of backup withholding?
76. 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?