Taxation Flashcards
3 tests to determine if an employer is subject to FUTA
- General Test
- Household employee test
- Farmworkers test
457b pre-retirement catch-up contribution limit
Allowed for last 3 years prior to the year of normal retirement age. limited to lesser of twice the current annual limit or the basic annual limit plus underutilized basic annual limit in prior years. Only allowed if not utilizing the Age 50 or over catch up
2021 annual contribution limit for 401k
- Employee elective deferrals plus employer contributions is the lesser of $58,000 or 100% of the employee’s total annual
- Catch up contribution of employees 50+ does not count towards the annual contribution limit
2021 Backup withholding rate
24%
2021 deferral limit for 401k
$19,500 Employees 50+ can contribute an additional $6,500
2021 deferral limit for 457b
$19,500 Employees 50+ can contribute an additional $6,500 catch up contribution
2021 definition of an HDHP
Minimum deductible of $1400 for individuals or $2800 for family coverage. Out-of-pocket expenses limited to $7000 for individual coverage and $14000 for family coverage
2021 full FUTA tax rate
6% on the first $7000 of wages each calendar year
2021 HSA contribution limits
$3600 for individual coverage $7200 for family coverage Employees 55+ can contribute an additional $1K. No Contribution allowed for Medicare part A or B enrollees
2021 Legal Holidays
Jan 1 New Year’s Day - Jan 17 MLK Jr. bday - Jan 20 Inauguration Date - Feb 15 Presidents Day - Apr 16 DC Emancipation Day - May 31 Memorial Day - 4th of July observed July 5th - Sept 6 Labor Day - Oct 11 Columbus Day - Nov 11 Veterans’ Day - Nov 25 Thanksgiving - Dec 24 Christmas
2021 limit on 403b elective deferrals
$19,500
2021 limit on annual additions for a 403b
$58,000 or 100% of includible compensation for the most recent year of service
2021 lookback period for Form 944 and 945 filers
Calendar year 2019
2021 maximum contribution limit for a dependent care FSA
$5000
2021 Medicare tax rate and wage base limit
1.45% no wage limit 0.9% Additional Medicare tax withholding on wages > $200K
2021 net FUTA rate after applying the full credit reduction
.60% = 6 % - 5.4%
2021 penalty rates for late tax deposits
- 2% 1-5 days late
- 5% 6-15 days late
- 10% 16+ days late, or paid within 10 days of the date of the first notice from the IRS.
- 15% more than 10 days after the date of the first IRS notice or the day on which you received notice and demand for immediate payments, whichever is earlier
2021 SEP employer contribution limit
Lesser of $58,000 or 25% of the employee annual compensation
2021 SIMPLE employee elective contribution limit
$13,500 Age 50 catch-up limit $3,000
2021 social security tax rate and wage base limit
Employee 6.2% on wages up to $142,800
Employer 6.2% on wages up to $142,800
Act that allows federal government agencies to garnish wages for nontax debt
Debt Collection Improvement Act of 1996
Act that established railroad worker retirement benefits
Railroad Retirement Tax Act (RRTA)
Basics of the aggregate withholding method
- Add the supplemental wages to the current wages if no regular wages are paid concurrently add the supplemental wages to the most recent regular wage payment
- figure the tax on the total as if it were a single payment
- subtract the amount of tax already withheld from the total tax
- Withhold the result from the supplemental
Best method for verifying you grossed-up wages correctly
Using the Grossed-Up amount, calculate the required withholdings and net pay
Can an employer have a combined defined contribution and defined benefit plan
Yes, for plan years beginning after 12/31/09
Can a successor employer take into account amounts collected for social security and paid for FUTA in the same calendar year but prior to the acquisition
Yes as long as the acquired employees were employed by the predecessor immediately prior to the acquisition and remained employed by the successor immediately following the acquisition.
CCPA
Consumer Credit Protection Act
Deadline to recover taxes from an employee that you deposited on the employee’s behalf
April 1 of the following year
define a common paymaster
2 or more related corporations employ the same individual at the same time. Pay the employee through one of the corporations. Corporation making the payments is the common paymaster and single employer with regard to payroll taxes.
Define a nonqualified deferred compensation plan.
Plan that may discriminate in favor of highly compensated employees officers or shareholders
Define a qualifying dependent under a dependent care FSA
Dependent child under 13, Spouse or dependent older than 13 who is unable to care for themselves due to mental or physical disability
Define a substantial risk of forfeiture
- Employer gives employee “mere promise to pay” the deferred compensation benefits in the future
- Employer may invest deferred amounts and may transfer amounts to a trust but fund must remain part of the companies general assets and be at risk to creditor claims in the event the company becomes insolvent
- Critical that the funds cannot be set aside for the exclusive benefit of the employees who made the deferrals
Define a Successor Employer
Received all or most of the property used in the trade or business of another employer, or a unit of that employer’s trade or business
Define disposable earnings for a child support order
Gross pay - Mandatory deductions = disposable earnings
Define disposable earnings for a garnishment order
Gross pay - taxes - court ordered child support - tax levies = disposable earnings
Define supplemental wages
any wages paid in addition to an employee’s regular wages
Definition of a deferred compensation Defined Benefit Plan
- Any qualified plans that are not defined contribution plans
- Contributions are based on the amount needed to provide participants with “definitely determinable benefits”
- uses actuarial assumptions and computations to figure benefits
Definition of a deferred compensation Defined Contribution Plan.
- Has individual accounts for each participant
- Participant benefits based largely on the amount the individual contributes to the plan
Deposit deadline for monthly depositors
15th of the following month
Deposit deadline for semi-weekly depositors
3 business days. If there are no holidays, Weds-Friday liability is due by the following Weds and Sat-Tues liability is due by the following Friday.
Difference between RRA and RRTA
Railroad Retirement Tax Act (RRTA) is the act to fund railroad worker retirement benefits
- Railroad Retirement Act (RRA) is the benefit system that pays out retirement payments
Do adjustments on Form 941X affect the tax liability in the lookback period
No
EFTPS
Electronic Federal Tax Payment System
Employers options for treatment of forfeited FSA contributions
- Use to offset plan expenses
- Allocate to all participants in the next plan year
- Distribute to participants in the current plan year.
Federal withholding requirements for allocated tips
Do not withhold on allocated tips
Filing status to use for figuring amount exempt from levy for employee who does not return Part 3 of Form 668-W
Married, filing separately, 0 exemptions
FIT taxability of nonqualified deferred compensation plans
Funded plan is subject to FIT when deferred Nonfunded plan is subject to FIT upon constructive receipt
Flat supplemental tax rate
22% 37% if year-to date supplemental wages, including the current payment exceed $1,000,000
Formula for computing days physically present in the U.S to meet the resident alien Substantial Presence test
100% of the days present in the U.S. during the current year plus 1/3 of the days present in the previous year plus 1/6 of the days present in the second year before the current year
Formula to gross-up pay
- 100%-sum % of all taxes = net %
- Payment/Net % = Gross
Frequency FUTA tax must be paid
Quarterly if exceeds $500
The FUTA credit reduction
5.4%
Garnishment priorities
1: Child support
2: Federal Tax Levy
3: State tax levy
4: local tax levy
5: creditor garnishments
6: Employer deductions
7: Employee voluntary deductions
Government agency that pursues collection of student loans
U.S. Department of Education
How can an employer most easily satisfy the EITC notification requirement
by using Form W-2, the statement is on the back of Copy B
How do you calculate federal income tax withholding on nonperiodic pension payments
Flat 10%
How do you calculate federal income tax withholding on periodic pension payments
As you would for regular wages but using the employee’s elections from Form W-4P
How much time after the FSA plan year-end do participants have to submit expenses?
2.5 months
If a deposit date falls on a nonbusiness day when is the deposit due
By the next business day
If an employee has not submitted a valid W-4 how should you withhold
As Single with Zero allowances
If an employer elects to distribute forfeited FSA Contributions to employees in what 2 ways may they allocate the distrubtion
Equally to all participants. Based on a weighted average of participant contribution elections to total elections
If an employer elects to distribute forfeited FSA contributions to participants is the distribution taxable?
yes
If a semi-weekly deposit period crosses quarters what extra step does an employer need to make
Make separate deposits for each quarter’s tax liability
If the taxpayer ID # is incorrect on Form W-4P how should you withhold
As single, with zero allowances
If wages are earned in one year and paid in another, which year are the wages reported?
In the year paid
If you hire an employee mid-year do you take into account amounts collected for social security by the previous emplyer
No, withhold the employee up to the full wage base limit
Initial period minimum & maximum automatic 401K enrollment contribution rates
- Minimum 3% of compensation
- Maximum 10% of compensation
In what year were 401K Roth employee contributions first allowed
2006
IRS section covering SEPs
408k
Is federal income tax withholding required on pension payments
No, only withhold if an employee makes the election on form W-4p
Key difference between Medical FSA and Dependent Care FSA with regards to expense reimbursement
Medical FSA employee can request reimbursement of actual expenses in excess of YTD Contributions up to their annual election. Dependent Care FSA employee cannot request reimbursement of expenses that exceed YTD Contributions
Key points of employer 401k & 403b matching contirbutions
Employer matches the employee’s contributions, usually based on a formula. Subject to vesting requirements the employer establishes. Tax-exempt. Employer matching may be offered by a company but is not required
Key points of the FUTA Farmworkers Test
Employer who pays cash wages of $20,000 or more to farmworkers during any calendar quarter in current or proceeding calendar year or employed 10 or more farmworkers during at least some part of a day (whether or not at the same time) during any 20 or more different weeks in the current or proceeding calendar year
Key points of the FUTA General Test
Employer is subject to FUTA if pays wages of $1,500 or more in any calendar quarter in current or preceding calendar year or has one or more employees for at least some part of a day in any 20 or more different weeks in current or preceding calendar year. Include all full-time, part-time and temporary employees. Do not include the partners in a partnership. This test excludes wages to farmworkers or household workers.
Key points of the FUTA Household Employees Test
Employer who pays total cash wages of $1,000 or more to household employees in any calendar quarter in current or preceding calendar year.
List the different types of 401k & 403b deferrals
- Employee pre-tax contributions
- Employee post-tax contributions
- Employer matching
- Non-elective employer contributions
- Employee Roth elective contributions
List the types of employers exempt from FUTA
- Recognized Indian tribal government or business owned wholly by the tribe who participate in the state unemployment system for the entire year and are in compliance with state unemployment law.
- Not for profit tax-exempt religious, educational, scientific, charitable, and other organizations described in section 501(c)(3)
- Federal government employers
- State and local government employers, including their political subdivisions
Maximum allowable garnishment withholding
25% of disposable earnings or the amount by which disposable earnings exceeds 30 times federal minimum wage.
Maximum allowable withholding for a student loan garnishment
15% of disposable pay if no other garnishments are in place. 25% of disposable pay for combined total of all garnishments in place.
Maximum contribution limit for a medical FSA
No IRS limit. Employer may set a limit.
Maximum number of employees a company can have to be eligible to set up a SEP.
25
Maximum withholding allowed for a child support order
50% of disposable pay if employee has a second family, 55% if in arrears. 60% if employee does not have a second family. 65% if in arrears
Meaning of the acronym FICA
Federal Insurance Contributions Act
Meaning of the acronym OASDI
Old Age, Survivors, Disability and Hospital Insurance
Name the deposit schedules
- Monthly and semi-weekly
- Exception if you accumulate $100K or more of taxes on any day during a deposit period, you must deposit by the next business day
Nonresident alien is subject which federal taxes
- FIT, for work performed in U.S.
- Social Security & Medicare for work performed in the U.S., unless exempted by a Totalization Agreement or by Visa
- FUTA, for work performed in U.S.
On what form do you report backup withholding
If deposited as part of your regular deposit report on Form 941. If made as a separate deposit report on Form 941 Schedule A
The “ordering rule”
Order of withholding for employee who has tips when there are not enough funds to cover all withholding. 1: Withhold on regular wages and other compensation. 2: Withhold social security and Medicare taxes on tips. 3: Withhold income tax on tips.
Other names for creditor garnishments
Wage Attachment, Income execution, Wage garnishment
A payout for accrued vacation time paid in addition to regular wages is what type of earnings?
Supplemental pay
QACA
Qualified Automatic Contribution Arrangements
Release from levy form number
668-D
Requirements to be considered a resident alien under the Green Card test.
If at any time during the calendar year is a lawful and permanent resident of the U.S. and status has not been rescinded or administratively or judicially determined to have been abandoned
Requirements to be considered a resident alien under the Substantial Presence test
Physically present in the U.S. at least 31 days in the current year and 183 days during the 3 year period that includes the current and 2 immediately preceding years.
Resident alien is subject to which Federal taxes?
FIT, Social security & Medicare, FUTA, On worldwide income, Paid by U.S. or foreign employers
Retirement plan for employees of state, counties and cities called.
457b plan
Retirement plan for tax-exempt organizations and public schools
403b Plan
Social security, Medicare and FUTA taxability of nonqualified deferred compensation plans
- nonfunded plan, deferrals reduce social security, Medicare & FUTA wages if employee has a substantial risk of forfeiture.
- Funded plan, deferrals are fully taxable
Taxability of distributions from an HSA
Tax-free if used for qualified medical expenses.
Taxability of employee 401K & 403B pre-tax contributions
- FIT exempt
- Social security & Medicare taxable
- FUTA taxable
Taxability of employee contributions to an HSA
- Contributions made through payroll deductions do not reduce taxable wages
- Contributions made through a Sec 125 cafeteria plan reduce taxable wages for FIT, social security, Medicare and FUTA
Taxability of employee elective deferrals to a SIMPLE
Exempt from FIT
Taxable for social security
Medicare
FUTA
Taxability of employer contributions to a HSA
Exempt from FIT, social security, Medicare and FUTA
Taxability of employer contributions to a SEP
tax exempt
Taxability of employer nonelective or matching contributions to a SEP
Tax Exempt
Taxability of FSA contributions
Exempt from FIT, social security, Medicare and FUTA
Threshold that makes you a semi-weekly depositor
More than $50K of total taxes reported in the lookback period
2 tests to determine if an employee is a resident alien
Green Card Test, Substantial Presence Test
Type of expenses reimbursable under a dependent care FSA
Non-medical expenses to care for a dependent in order for the employee be employed
Type of garnishment that can take priority over a child support order.
A federal tax levy that is in place before the child support order is established (based on the date of the order, not the date the employer is served)
Types of FSAs
Medical FSA, Dependent Care FSA
What are the shortfall makeup dates
- Monthly depositor by the due date of return for the return period in which the shortfall occurred, even if the amount is $2500 or more.
- Semiweekly depositor by the earlier of 1st Weds or Fri (whichever is first) on or after the 15th of the month following the shortfall or the due date of your return.
What are the two common ways states allow employers to allocate disposable pay when an employee has multiple child support orders
Divide disposable pay by the number of orders to distribute it equally. Pro-rate disposable earnings across the orders by determining the percentage of the total each order represent
What days in the U.S do not count towards resident alien Substantial Presence test?
- spent commuting between the U.S. and Canada or the U.S. and Mexico
- of travel layover between 2 countries when less than 24 hours is spent in the U.S.
- Intended to leave but unable to leave the U.S. due to a medical condition
- Spent in the U.S. under an F, J, M or Q visa while in compliance with the visa requirements
- Present as a professional athlete to compete in a charitable sports event
- Days spent in the U.S. in as a foreign diplomat
What document do you use to calculate the amount of wages exempt from federal levy
IRS Publication 1494
What does acronym SIMPLE mean
Savings Incentive Match Plan for Employees
What does the acronym FSA mean
Flexible Spending Arrangement
What does the acronym HDHP mean
High Deductible Health Plan
What does the acronym HSA mean
Health Savings Account
What does the acronym SEP mean
Simplified Employee Pension
What happens to FSA contributions in excess of qualifying expenses
Forfeited to the employer
What is a “B” notice
Backup withholding notice to a payee
What is Form 941 Schedule D
Report of Discrepancies Caused by Acquisitions, statutory mergers, or consolidations
What is Form 1099-SA
Distributions from an HSA, Archer MSA, or Medicare Advantage MSA
What is Notice CP2100
Notice to a payer that he may be responsible for backup withholding
What is the 403b 15 year rule
For employees with 15+ years or service, limit on elective deferrals is increased by the least of $3K or $15K minus the increases to the limit the employee was allowed in earlier years due to this rule and the aggregate amount of Roth contributions in prior years or $5K times the employee’s years of service minus the total elective deferrals made by the employer in prior years
What is the lookback period
Period used to determine your deposit schedule. For a 941 filer it is the 4 quarters (Jul-Jun) beginning in the 2nd preceding calendar year i.e. for 2021 the lookback period is Jul 2019 - Jun 2020
What part of the OASDI does Medicare fund
The hospital insurance portion
What should a payer who receives a first CP2100/CP2100A send to the payee
A first “B” notice and a Form W-9 within 15 days of receipt of the CP2100/2100A
When can an employee make FSA elections
At the beginning of the plan year, After a change in family status or employment
When does a monthly depositor become a semi-weekly depositor for the rest of a calendar year?
If accumulates $100K of tax liability
When do you have to deposit backup withholding
on the same schedule as your federal tax liability
When is an employer ineligible from taking the full FUTA credit reduction?
If they have paid any portion of their SUI late, for wages in a state that is in arrears repaying unemployment loans to the federal government
When is FUTA not payable
- Household employer who pays less than $1K for all employees in quarter
- Agricultural employer pays cash wages of less than $20k for farmworkers in quarter or employs less than 10 farmworkers during any 20 or more difference weeks during the year
- on noncash payments
When making pension or annuity payments, how should you withhold if no Form W-4P has been submitted
As Married 3 Allowances
When should a payer send a payee a Second “B” notice
Upon receipt of a second CP2100/CP2100A within a 3 calendar year period. Send within 15 days of receipt of the CP2100/CP2100A
When should you begin backup withholding on a payee
30 business days after you receive the first CP2100/CP2100A. Anytime within the first 30 days after receiving a second “B” notice
When should you make backup withholding
On payments to independent contractors who have not provided a TIN or provided an incorrect TIN
When should you stop backup withholding on a payee
Within 30 calendar days after you receive either Form W-9 from the payee or TIN validation from the SSA or the IRS
Where do you report dependent care on Form W-2
Box 10
Where do you report employee 401K contributions on Form W-2
Report employee pre-tax contributions in box 12 code D
Where do you report employee 403b contributions on Form W-2
Report employee pre-tax contributions in box 12 code E
Where do you report employee 457b contributions on Form W-2
Report elective deferrals, employer contributions and nonelective deferrals in box 12 code G
Where do you report employer HSA contributions on Form W-2
Box 12 Code W
Who is responsible for sending a “B” notice
a payer who receives a CP2100/CP2100A sends the B notice to the payee
Who must employers notify regarding EITC
Employees who have no federal income tax withheld.
