Chapter 5

Question 1

To determine if an employer is a monthly or semiweekly depositor
for 2021, the lookback period is:
❑ a. January 1 - December 31, 2020
❑ b. October 1, 2019 - September 30, 2020
❑ c. July 1, 2019 - June 30, 2020
❑ d. January 1 - December 31, 2019

Answer 1

c. The lookback period for 2021 is July 1, 2019, through June 30,
2020.

Question 2

If the employer’s total tax liability for the quarter is less than
$2,500, when must the taxes be paid?
❑ a. By the due date of Form 941
❑ b. By the 15th of the month after the withholding
❑ c. By Wednesday or Friday under the semiweekly rules
❑ d. By the next business day

Answer 2

a. A quarterly depositor has a total tax liability for the quarter that
is less than or equal to $2,500.

Question 3

If the employer’s total tax liability for the lookback period is
$48,000, when must a tax liability of less than $100,000.00 be
deposited?
❑ a. By the due date of Form 941
❑ b. By the 15th of the month after the withholding
❑ c. By Wednesday or Friday under the semiweekly rules
❑ d. By the next banking day

Answer 3

b. A monthly depositor had a tax liability of $50,000 or less during
the lookback period and deposits employer taxes by the 15th of the
next month.

Question 4

If the employer’s total tax liability for the lookback period is
$75,000, when must tax liability of less than $100,000.00 be deposited?
❑ a. By the due date of Form 941
❑ b. By the 15th of the month after the withholding
❑ c. By Wednesday or Friday under the semiweekly rules
❑ d. By the next business day

Answer 4

c. A semiweekly depositor has a tax liability greater than $50,000
during the lookback period and makes tax deposits by the Wednesday
or Friday after the end of the deposit period.

Question 5

If the employer’s total tax liability for a payday is $150,000, when
must the taxes be deposited?
❑ a. By the due date of Form 941
❑ b. By the 15th of the month after the withholding
❑ c. By Wednesday or Friday under the semiweekly rules
❑ d. By the next business day

Answer 5

d. A tax liability of $100,000 or more must be deposited on the next
business day.

Question 6

A company pays semimonthly on the 15th and the last day of the
month. The company reported $40,000 of federal taxes during the
lookback period. This month, one payday occurs on Wednesday,
January 15th. When is the company required to make a tax deposit?
❑ a. Within three business days of the 15th
❑ b. On or before the following Wednesday
❑ c. With its quarterly Form 941
❑ d. On or before the 15th of the following month

Answer 6

d. The company is a monthly depositor because the aggregate
amount of employment taxes for the lookback period was $50,000
or less and must deposit the taxes by the 15th of the following
month.

Question 7

The company (see Question 6) paid only 98% of its tax liability on
the due date (February 15). Which of the following is true?
❑ a. It faces a stiff penalty for failure to pay its obligation.
❑ b. The remaining 2% must be paid by March 15.
❑ c. The remaining 2% must be paid by the due date of its first
quarter Form 941.
❑ d. The remaining 2% must be paid by December 31.

Answer 7

c. The safe-harbor rule allows depositors to avoid penalties as
long as they deposit 98% of their tax liability by the due date. All
monthly depositors must deposit the full amount by the due date
of their first quarter Form 941 (April 30).

Question 8

A company is a semiweekly depositor. On its weekly Friday payday,
it has a deposit liability of $50,000.00. When must the company
deposit its payroll taxes?
❑ a. By the following Wednesday.
❑ b. By the following Friday.
❑ c. By the following Monday.
❑ d. By the 15th of the following month.

Answer 8

a. Under the semiweekly rule, tax liabilities on payments made on
Wednesday, Thursday, and/or Friday must be deposited by the following
Wednesday. Tax liabilities on payments made on Saturday, Sunday,
Monday, and/or Tuesday must be deposited by the following Friday.

Question 9

An employer’s tax deposit status always remains the same for the
entire year.
❑ True
❑ False

Answer 9

False. A monthly depositor with a liability in excess of $100,000 in
a deposit period becomes a semiweekly depositor.

Question 10

A semiweekly depositor has a Friday payroll with a tax liability of
$85,000. The next Monday is a holiday. When must the employer
deposit the taxes to avoid penalties?
❑ a. The next Monday
❑ b. The next Wednesday
❑ c. The next Thursday
❑ d. The next Friday

Answer 10

c. Semiweekly depositors always have three business days to make
their deposits after the deposit period ends.

Question 11

A company is a semiweekly depositor. Its next deposit is due on
Wednesday, which falls on a federal holiday. To be considered
timely, the company’s deposit of federal payroll taxes must be
made on or before the close of business on:
❑ a. Tuesday.
❑ b. Thursday.
❑ c. Monday.
❑ d. Friday.

Answer 11

b. Because Wednesday is a holiday, the company has until Thursday
to deposit its payroll taxes.

Question 12

A semiweekly depositor has accumulated a liability of $95,000 on
Friday. On Saturday, it accumulates a $10,000 liability. Does the
one-day rule apply?
❑ a. Yes
❑ b. No

Answer 12

No. For purposes of the $100,000 rule, do not continue to accumulate
employment tax liability after the end of the semiweekly
deposit period. The company’s deposit period ended on Friday.

Question 13

Between paydays, an employer must issue a off-cycle check to a terminating
employee. The employer can hold the tax liability until
the next regular payday to make the tax deposit.
❑ True
❑ False

Answer 13

False. The IRS requires semiweekly depositors to deposit the tax
liability at the end of each deposit period.

Question 14

Which form is used by an employer to report federal income tax,
social security tax and Medicare tax withheld?
❑ a. Form 941
❑ b. Form 943
❑ c. Form 944
❑ d. Form 945

Answer 14

a. The employer must withhold federal income tax, social security
tax and Medicare tax from employees wages and report it on Form
941.

Question 15

All of the following items are reported on Form 941 EXCEPT:
❑ a. wages, tips and other compensation.
❑ b. federal income tax withheld.
❑ c. social security tax.
❑ d. social security numbers.

Answer 15

d. The employee’s social security number is not reported on Form
941.

Question 16

Which form is used to report taxes on agricultural employees’ wages?
❑ a. Form 941
❑ b. Form 943
❑ c. Form 944
❑ d. Form 945

Answer 16

b. Report total taxes on agricultural employees on Form 943.

Question 17

Where is Form 941 filed?
❑ a. With the local IRS office
❑ b. With EFTPS
❑ c. At the IRS designated address
❑ d. With the IRS National Office

Answer 17

c. Tax returns are sent to the IRS address found in each form’s
instructions.

Question 18

A company has consistently deposited 100% of its tax liability on
time. What is the last date it can file its first quarter Form 941?
❑ a. April 15
❑ b. April 30
❑ c. May 10
❑ d. May 15

Answer 18

c. Employers who make timely deposits of the full amount of employment
taxes can get a 10-day filing extension. The filing deadline
for the first quarter (January 1 to March 31) is normally April
30. The deadline can be extended to May 10.

Question 19

Form 941 is filed monthly.
❑ True
❑ False

Answer 19

False. Form 941 is filed quarterly.

Question 20

An employer is required to file a Form W-2 in all of the following
situations EXCEPT:
❑ a. A part-time employee in shipping who claimed exempt from
withholding on his Form W-4
❑ b. A freelance writer who was paid $5,200.00 to prepare ad
copy for the employer
❑ c. A salesperson who retired in May
❑ d. A student who is exempt from social security tax

Answer 20

b. Send W-2s to all employees, current or not, who received wages
(even if you didn’t withhold taxes). Report earnings of independent
contractors, such as the freelance writer, on Form 1099-NEC.

Question 21

An employee quit his position on April 10. Generally, when must
the company send the former employee copies of his W-2?
❑ a. By May 10
❑ b. By May 30
❑ c. By December 31
❑ d. By January 31

Answer 21

d. Unless the former employee has asked to get his W-2 earlier, you
can send it along with all employees’ wage and tax statements. If
he does ask in writing to get the W-2 earlier, you have 30 days to
send it to him.

Question 22

Your firm made a mistake in reporting an employee’s taxable wages
on his Form W-2. Which form is used to correct this error?
❑ a. W-2
❑ b. W-2c
❑ c. W-3
❑ d. W-3c

Answer 22

b. Correct the error on Form W-2c; transmit the corrected form to
the SSA with Form W-3c.

Question 23

The payroll department staff made a series of errors on 100 of the
350 Forms W-2 for 2021 that were sent to the Social Security Administration
electronically before January 31, 2022. Shortly after filing,
they realized their errors and corrected the returns by February 15,
2022. What is the penalty for these mistakes?
❑ a. $3,000.00
❑ b. $4,500.00
❑ c. $6,000.00
❑ d. $10,000.00

Answer 23

b.
The due date for filing 2021 Forms W-2 with the Social Security
Administration was January 31, 2022, and the forms were corrected
within 30 days of the due date, so a $50 penalty is applicable:
100 mistakes x $50 = $5,000
In addition, employers are not penalized for timely filed returns
with incorrect or incomplete information that are corrected before
August 1, up to 10 returns or 0.50% of the total number of information
returns the employer must file during the year, whichever is
greater. This de minimis relief applies here.
0.50% of 350 returns = 1.75
10 is greater than 1.75 so 10 of the incorrect returns will not be
penalized:
100 – 10 = 90
Accordingly, only 90 returns will be penalized at $50 for a total
penalty of $4,500 (90 x $50 = $4,500).

Question 24

An employer’s accumulated employment taxes were $53,000.00 in
federal income tax, $27,868.41 in social security tax, and $7,771.00
in Medicare tax. On the due date, it deposited $80,000.00 through
EFTPS. Five days later, it deposited an additional $8,639.41. What is
the penalty, if any, for this action?
❑ a. $137.33
❑ b. $172.79
❑ c. $186.00
❑ d. No penalty

Answer 24

a. The employer was required to deposit 98% of its accumulated
tax liability of $88,639.41, or $86,866.62. It underdeposited by
$6,866.62. The penalty is 2% of the underpayment since the employer
deposited the correct amount within five days. So, the penalty
would be $137.33 (2% x $6,866.62).

Question 25

Under what circumstances could certain officers or employees of a
corporation become personally liable for payment of taxes under
federal law?
❑ a. For failure to withhold and/or pay federal income tax, social
security tax, and Medicare tax
❑ b. For filing fraudulent information returns
❑ c. For depositing taxes late
❑ d. For filing incorrect information returns

Answer 25

a. The 100% penalty can apply when federal income tax, social
security tax, and Medicare tax are not withheld and/or paid. Under
this penalty, certain officers of the firm could be found personally
responsible for payment of the taxes and penalized an equal
amount.

Question 26

All employees must receive notice of the Earned Income Credit
required by the IRS.
❑ True
❑ False

Answer 26

False. Only employees meeting the IRS eligibility requirement must
receive notice of the EIC. However, some states require all employees
to be notified of the EIC.

Question 27

An employee claims married with five allowances on a 2019 Form
W-4 and earns $1,000 per month. Although he hasn’t claimed
exempt status on his Form W-4, no federal income tax is withheld
from his wages. Which of the following is true?
❑ a. The employee will not be eligible for the earned income tax
credit.
❑ b. If he filed Form 1040 last year, he will continue to receive
EIC payments this year.
❑ c. You must provide the employee detailed information about
the EIC.
❑ d. The employee can get the EIC even if he doesn’t file a tax
return.

Answer 27

c. Employers are required to provide EIC information to all employees
who do not claim exempt status yet have no federal income tax
withheld. Eligible employees can receive EIC when they file their
tax returns.

Question 28

What is the FUTA tax rate?
❑ a. 0.6%
❑ b. 5.4%
❑ c. 6.0%
❑ d. 7.65%

Answer 28

c. The FUTA tax rate is 6.0%.

Question 29

What is the FUTA tax rate that most employers pay?
❑ a. 0.6%
❑ b. 5.4%
❑ c. 6.0%
❑ d. 7.65%

Answer 29

a. Most employers are able to take a 5.4% credit for the state unemployment
taxes paid for an effective rate of 0.6% (6.0% - 5.4%).

Question 30

What is the FUTA wage base in 2021?
❑ a. $5,000.00
❑ b. $7,000.00
❑ c. $19,500.00
❑ d. $142,800.00

Answer 30

b

Question 31

Employers in a state with a credit reduction will pay FUTA taxes at
a rate different from 0.6%.
❑ True
❑ False

Answer 31

True. Employers in credit reduction states will have their FUTA credit
reduced by 0.3% for each year they are in credit reduction status.

Question 32

Generally, how frequently are FUTA taxes deposited?
❑ a. Daily
❑ b. Semiweekly
❑ c. Monthly
❑ d. Quarterly

Answer 32

d. Employers with a quarterly FUTA tax liability of $500 or more
must deposit the tax quarterly.

Question 33

An employer has 20 employees in a state that does not have a FUTA
credit reduction. The three top managers of the firm earn $10,000,
$7,500, and $5,000 per month. Its ten engineers are paid $3,000
per month. The remaining employees, all support staff, are paid
$1,400 per month. Calculate its FUTA deposit for the first quarter.
$_______________

Answer 33

The employer’s first-quarter FUTA deposit is $722.40.

Note that 13 of its 20 employees will earn over $7,000 in the first three
months. Calculate the firm’s first-quarter FUTA deposit as follows:

Question 34

By when is a company in with a first quarter FUTA liability of $722.40 required to make its first quarter FUTA deposit?
❑ a. April 15
❑ b. April 30
❑ c. May 30
❑ d. It may be carried forward and deposited with the second
quarter payment.

Answer 34

b. The first quarter deadline is April 30. If the amount (plus any
amount not yet deposited for any earlier quarter of the year) is
more than $500, deposit it no later than the last day of the first
month after the quarter.

Question 35

In the first quarter, an employer has 20 employees in a state that does not have a FUTAcredit reduction. The three top managers of the firm earn $10,000,$7,500, and $5,000 per month. Its ten engineers are paid $3,000
per month. The remaining employees, all support staff, are paid
$1,400 per month. The FUTA liability for quarter 1 is $722.40

At the beginning of the second quarter, the employer hires an additional engineer at a monthly salary of $3,300. What is
its second-quarter FUTA liability?
$________________

Answer 35

Its second-quarter FUTA liability is $159.60

Question 36

No new staff are added until the fourth quarter, when the employer
in prior question hires an office manager on December 1 at a monthly
salary of $2,000. One of its engineers, with the firm for over 10
years, retires on November 30. On December 31, the employer
learns that its FUTA credit is reduced by .3%. What is its fourthquarter
deposit?
$_________________

Answer 36

Its fourth-quarter FUTA deposit is $618.60.

The FUTA credit is now 5.1% (reduced by .3%). So the employer’s
effective rate is now 0.9% (6.0% – 5.1% = 0.9%). To calculate the
January deposit, recalculate the employer’s tax liability at the
new rate, subtract for deposits that have already made, and add
amounts due for unpaid balances or the fourth quarter. Note: The
retirement has no effect on the employer’s final deposit since it
already covered this employee’s wages in the first quarter.
FUTA
Taxable Wages
1Q $120,400.00
2Q $26,600.00
3Q 0.00
4Q $2,000.00
$149,000.00 x. 0.9% = $1,341.00
Less year-to-date deposits – 722.40 ($722.40 from the
first quarter)
Final deposit $618.60 (due January 31)