Questions for Review (p. 4–39)
Note: All answers and solutions are based on Tax Tables A and B in the textbook and the tax regulations presented in Chapter 4. Tax Tables A and B are used by employers, effective January 1, 2008.
1. The amount by which the fair market value of the fringe benefit exceeds what the employee paid, plus any amount the law excludes.
2. Cash tips of $20 or more received in a calendar month, in the course of employment with a single employer, are treated as remuneration subject to income tax withholding.
3. a. Nonexempt
4. The employer must match the employee’s contribution up to a maximum of 3% of the employee’s pay.
5. The maximum of deferred contributions that employees can make into their 401(k) plans are the lesser of $15,500 or 100% of their pay.
6. A personal allowance is a deduction allowed in computing taxable income.
In 2008, the amount of a personal allowance was $3,500.
7. None. D’Amato would have been entitled to a partial tax-free deduction if his modified adjusted gross income had been less than $63,000.
8. Employer contributions into employees’ health savings accounts are excluded from the employees’ taxable income.
9. Employees who had no income tax liability in 2008 and do not expect to have any for 2009 qualify for exemption from withholding of federal income tax from their wages. Single persons who made less than $8,950 in 2008 owed no federal income tax. During 2008, a married couple entitled to file a joint return could earn combined wages up to $17,900 without incurring any federal income tax liability. However, if someone else claimed the employee as a dependent on his or her tax return, the employee probably would have to pay some income tax. For example, in 2008, employees were not exempt from withholding if they had any nonwage income, such as interest on savings or dividends (exceeding $300), and if their total income (wages and nonwage income) was more than $900. Employees who are exempt from the withholding of federal income taxes should complete and submit to their employer Form W-4 showing the exempt status.
10. The special period rule allows employers to use October 31 as the cutoff date for valuing noncash fringe benefits. This means that fringe benefits received in
November and December can be treated as being received in the following year.
11. Oldt may elect to have no income tax withheld from his pension fund payments by so indicating on Form W-4P, Withholding Certificate for Pension or Annuity Payments.
12. $67.31 $291.66 ($145.83 × 2)
13. The formula is: Intended payment 1 – Applicable tax rates
14. When the federal income tax has already been withheld from the employee’s regular wages, the employer may select one of two alternative methods for withholding the tax on the annual bonus payment. The employer may combine the bonus with the wages for the last preceding or the current payroll period. The amount to be withheld is then determined as if the bonus and the regular wages were a single payment. However, since the federal income tax has already been withheld from the regular wages, that amount is subtracted from the tax due on the total. Only the excess federal income tax is deducted from the payment of the bonus. Or, the employer may elect to withhold a flat 25% of the bonus payment. If the employer elects to withhold at the 25% rate, this must be done without considering any withholding allowances claimed by the employee.
15. Advance EIC payments made by the employer are treated as having been made from amounts withheld as income tax, employee FICA taxes, and employer FICA taxes. Employers take into account the amount of their advance EIC payments when completing their quarterly employment tax returns. On Form 941, the amount of the advance EIC payments is subtracted from the total amount of income taxes and FICA taxes in order to determine the employer’s net tax payments for the quarter. 16.