R6 Module 3

Question 1

list of items businesses must consider in determining an employee vs an independent contractor

Answer 1

1) business controls what worker does and how performs work (employee)
2) if worker owns own business, tools (independent contractor)
3) if worker is paid by job (IC), or hourly or salary (employee)
4) if job is of limited duration (IC) or ongoing or continuous (employee)
5) worker receives benefits (employee)

Question 2

FICA (Federal Insurance Contributions Act)

Answer 2

-provides workers and dependents with benefits in case of death, disability, or retirement
-all full-time and part-time employees must participate in program. Self-employed must also participate if net profit > $400 in yr
-very few workers exempt (gov. workers and ministers)
-funded by taxing income earned from labor
-funded by employers and employees, including self-employed individuals

Question 3

employer responsibilities

Answer 3

-must match employees’ contributions to FICA
-responsible for paying tax and withholding employee’s contribution
-employer failing to withhold employee contribution liable to pay employee’s half but has right to reimburse from employee
-if employer voluntarily pays employee’s share, it is deductible for employer and taxable income for employee
-employers subject to penalties who fail to make timely FICA deposits or supply federal TIN

Question 4

employee responsibility

Answer 4

-employees liable to make FICA contributions of 6.2% of net taxable wages up to $160,200 and Medicare contributions of 1.45% of entire gross wages
- individuals with income > $200k if single and $250k MFJ liable for additional medicare tax of 0.9% of entire gross wages

Question 5

self-employed person responsibility

Answer 5

-pay into FICA through self-employment tax = 15.3%
-imposed only on net profits and only if net profits > $400 in yr

Question 6

employer contributions deductible

Answer 6

-employer’s contribution is deductible as an ordinary business expense
-employee’s contributions not deductible
-1/2 self-employed contributions is deductible since SE provides and pays for own contributions

Question 7

FICA benefits

Answer 7

1) disability pay
2) retirement pay
3) survivor’s benefits
4) dependent’s benefits
5) medical benefits under Medicare

Note: benefits available to all covered employees regardless of whether it is from a private plan or not. Employees cannot opt of out social security even if on private plan

Question 8

unemployment compensation (FUTA)

Answer 8

-establishes a state-run system of insurance to provide income to workers who have lost their jobs
-though guidelines, states administer the program and set standards and determine pay

Question 9

participation of FUTA

Answer 9

-all employees who have quarterly payrolls of at least $1,500 or who employ at least one person for 20 weeks in yr must participate in system
-self-employed persons do not participate

Question 10

funding of FUTA

Answer 10

-unemployment taxes are payroll taxes assessed against employer
-FUTA tax currently 6% on first $7k pr yr of compensation for each employee
-employers can get full credit against federal tax due for payments made on account of state unemployment taxes up to 5.4% of first $7k
-state rate can be reduced if employer has below-average rate of unemployment claims from prior employees

Question 11

FUTA employer deductibility

Answer 11

employer’s payment is deductible as ordinary business expense
employee does not pay tax and therefore no deduction for employee

Question 12

FUTA benefits

Answer 12

-available when employee’s job termination was not their fault
-benefits distributed to employees by state governments
-amount paid varies from state to state but usually determined by how long employee has worked and former rate pay
-payments not limited to amount that has been paid by employer on employee’s half
-if employer’s claim rate low, employer may get deduction for state unemployment tax
-contributions made by employees do not limit their benefits

Question 13

worker’s compensation

Answer 13

-programs state-run designed to enable employees to recover for injuries incurred while on job
-in most states, coverage compulsory
-employers must participate in worker’s comp programs
-exceptions for participation are domestic workers, agricultural, casual workers (temp workers), public employees, and independent contractors
-some states exempt employers who have up to only three or four employees

Question 14

funding for worker’s compensation

Answer 14

-employer pays for workers’ compensation by purchasing insurance from state or private carrier
-an employer who elects not to participate in worker’s comp gives up common law defenses of contributory negligence, assumption of risk, and fellow servant doctrine
-damage awards not limited to what would be recovered under workers’ comp
-some states allow employers to self-insure if can prove financially responsible

Question 15

deductibility of worker’s compensation

Answer 15

workers’ compensation insurance premiums are ordinary business expenses deductible to employer
not deductible for employees

Question 16

worker’s comp benefits

Answer 16

-provides benefits for any injury or disease (including aggravations of existing diseases resulting from employment (does not have to be on premises but within scope of employment)
-include money for loss of income, disability (only % but not full pay), loss of limbs, prosthetic devices, medical services, burial costs and survivor’s benefits
-program works like other insurance-benefits not limited to what was paid on employee’s behalf

Question 17

affordable care act

Answer 17

-purpose of it is to improve access to health care in U.S. by providing workers with access to affordable health care coverage
-health care coverage offered through:
1) plan provided by employer
2) plan purchased through Health insurance marketplace, where employees qualify for financial assistance
3) coverage provided under gov sponsored program such as Medicare, most Medicaid, and health care programs for veterans
4) direct purchase by employee from an insurance company

Question 18

participation of ACA (affordable care act)

Answer 18

-both employers and employees required to participate
1) certain employers must offer health care coverage or pay penalty
2) an individual must obtain health care coverage for himself, spouse, and tax dependents

Question 19

funding for affordable care act

Answer 19

–both employer and employee contribute to purchase of affordable coverage
1) employer may subsidize cost of coverage in order to ensure that it is affordable
2) employee will pay certain amount of coverage, whether purchased through employer or through another source

Question 20

employer responsibility under ACA

Answer 20

-employers with 50 or more full time employees (ALEs applicable large employers) required to provide affordable minimum essential health care coverage for themselves and dependents under eligible employer-sponsored health plan

Question 21

requirements of ACA by employers

Answer 21

1) all types employers of ALEs, including tax-exempt orgs and government entities
2) an employee who works for an employer on avg. at least 30 hours a week or 130 hours of service a month is full-time employee
3) coverage considered affordable if employee contribution plan not exceed 9.5% of employee’s household income for tax yr
4) dependent is an employee’s child who has not reached age 26
5) employers do not comply with ACA pay penalty for failure
6) employers required to file annual info returns with IRS and must also provide info to employees about coverage

Question 22

employee responsibility under ACA

Answer 22

-penalty for persons who failed to purchase health coverage was eliminated
-employees who have minimum essential coverage will report this fact on tax return
-unemployed persons or people working for companies not required to provide affordable health care may purchase insurance through Health Insurance Marketplace

Question 23

ACA benefits

Answer 23

-does not create national health insurance plan
-it sets national standards for how health insurance is structured and priced and places new requirements on individuals and employers
-ACA makes it illegal for an insurer to deny coverage to individuals with preexisting conditions or to charge more for their coverage

Question 24

penalties for failure to comply with ACA

Answer 24

-employer must pay fee for failure to comply with ACA
-employer not obligated to calculate its liability and should not make a payment without first being contacted by IRS
-two types of penalties: penalty one and penalty two

Question 25

first penalty for failure to comply for ACA

Answer 25

-ALE owed first type of employer shared responsibility payment if does not offer minimum essential health coverage at least 95% of full-time employees and depenents
-AND at least one full-time employee receives premium tax credit for purchasing coverage through health marketplace
-annual basis, payment = $2,880 for each full-time employee, with first 30 employees excluded from calculation

Question 26

second type of penalty for failure to comply for ACA

Answer 26

-employer will owe second type for each full-time employee who receives premium tax credit for purchasing coverage in marketplace even if provides minimum essential health coverage for 95% of employees
-on annual basis, payment = $4,320 for each full time employee receiving premium tax credit
-payment cannot exceed amt employer would have owed had employer not offered minimum essential coverage at least 95% of time

Question 27

full-time employees who receive premium tax credit if:

Answer 27

1) minimum essential coverage employer offers to employee not affordable
2) MEC employer offers does not provide minimum value
3) employee not one of at least 95% of full-time employees offered MEC

Question 28

deductibility for employer of ACA

Answer 28

-employers may deduct costs of insurance premiums paid for benefit of their employees as a business expense
-none of penalties required of employer under employer shared responsibility provisions are deductible

Question 29

premium tax credit

Answer 29

-a refundable credit that helps eligible lower or moderate-income txpayers (those earning between 100 to 400% of federal poverty level) cover premiums for their health insurance purchase though health marketplace
-marketplace resource provided by gov. where individuals, families and small businesses can:
1) compare health insurance plans for coverage and affordability
2) get answers to questions about health care insurance
3) find out eligibility for tax credits for private insurance or health programs like Medicaid
4) enroll in health insurance plan

Question 30

premium tax credit in 2025

Answer 30

-those earning more than 400% of federal poverty level are eligible for subsidies that cap marketplace health insurance premiums at no more than 8.5% of household income

Question 31

eligibility for premium tax credit

Answer 31

1) must have household income falls between 100 to 400% of federal poverty level
2) cannot use MFS status
3) cannot be claimed as dependent by other person
5) must be enrolled in health insurance coverage through marketplace for one month and:
-unable to get affordable coverage through employer sponsored plan providing min. value OR
-not eligible for gov. health coverage such as Medicare or Medicaid
Note: txpayer’s eligibility for advance payments of premium tax credit determined by system when apply for insurance through marketplace

Question 32

premium tax credit benefit

Answer 32

-credit depends on income, cost of plan, txpayer’s address and size of family
-credit received monthly, which is paid directly to insurer to reduce premium costs or taken as refundable credit against federal taxes

Question 33

foreign corrupt practices act

Answer 33

-enacted in 1977, prohibits payment of bribes to foreign officials to assist in obtaining or retaining business
-applies if offered bribe made through any transaction involving interstate commerce like e-mail, phone or mail
-bribes include offer of anything of value like money or property, return of benefits to which party would be entitled to
-act covers payments or promises made to someone other than gov. official if offeror knows any part what is being offered will be used to bribe gov official

Question 34

foreign corrupt practice penalties

Answer 34

-violations punishable by civil fines of up to twice amount of benefit expected to be received as result of bribe, criminal penalties, the appointment of independent auditor to monitor compliance, and imprisonment of up to 5 yrs