2. IRS Business Requirements Flashcards
- U.S. tax law requires business to submit a Form 1099-MISC for every contractor paid at least ___ for services during a year.
A. $400.
B. $500.
C. $600.
D. $1,000.
The answer is C. U.S. tax law requires business to submit a Form 1099-MISC for every contractor paid at least $600 for services during a year. Each payer must complete a Form 1099-MISC for each individual or business. Corporations are exempt recipients, so if a business makes payments to a corporation, it is not required to issue a 1099-MISC to the corporation.
- Dan is a full-time life insurance salesman and a statuary employee. He receives a Form W-2 for his earnings. How should he report his income?
A. On Form 1040 as regular wage income.
B. On Schedule C, not subject to self-employment.
C. On Schedule C, subject to self-employment tax.
D. On Schedule K.
The answer is B. Statuary employees are unique because they report their wages, income, and allowable expenses on Schedule C, just like self-employed taxpayers. However, statuary employees are not required to pay self-employment tax because their employers must treat them as employees for Social Security tax purposes.
- What is the minimum amount of time an employer should keep employment tax records, such as copies of W-2s?
A. Indefinitely.
B. Three years.
C. Four years.
D. Five years.
The answer is C. The IRS advises employers to keep all employment tax records for at least four years.
- In 2012, an employer with ___ employees or more must report the cost of health care coverage under employer-sponsored group health plans.
A. 50.
B. 100.
C. 200.
D. 250.
The answer is D. Under the Affordable Care Act, employers with 250 or more workers must provide this information on their employees’ W-2s in 2012.
- In 2012, what is the threshold for Social Security tax to be withheld from an employees wages?
A. $106,800.
B. $110,100.
C. $113,700.
D. No cap.
The answer is B. The threshold for Social Security tax is $110,100 in 2012. In tax year 2013, the threshold is $113,700. Medicare taxes are withheld on an employee’s wages without regard to income levels.
- All of the following statements are true about the trust fund recovery penalty excerpt:
A. Someone who is simply indifferent to the requirements for paying trust fund taxes will never be assessed the penalty.
B. The IRS can take collection against the personal assets of anyone deemed a “responsible person.”
C. A trust fund tax is comprised of income tax and Social Security and Medicare tax that is withheld from an employee’s wages and held in “trust” to be paid to the U.S. Treasury.
D. The amount of the TFRP is equal to the unpaid balance of the trust fund tax.
The answer is A. In assessing the trust fund recovery penalty, the IRS may hold someone responsible who intentionally disregarded the law or was “plainly indifferent” to its requirements. No evil intent or bad motive is required.
- The IRS uses all of the following characteristics to assess the relationship between a business and its workers except:
A. Type of relationship.
B. Financial control.
C. Income level.
D. Behavioral control.
The answer is C. Income level is not a factor in determining a worker’s status. The main issue involves whether the employer or the worker has the right to direct or control how the work is done, and to control the financial and business aspects of the job. This then helps determine whether a worker is an employee or an independent contractor.
- Caden, age 16, works behind the counter of a juice bar owned by his mother, a sole proprietor. Which of the following taxes, if any, should be withheld from his paycheck?
A. Income tax.
B. Income tax, Social Security and Medicare taxes.
C. Income tax, Social Security and Medicare taxes, and FUTA tax.
D. None of the above.
The answer is A. Family members who work for other family members are subject to different tax requirements. Only income tax is taken out of the paycheck of a child under age 18, so long as he is working for a parent who is a sole proprietor.
