Fundamentals of Taxation 2011 Chapter 10 Solutions
CHAPTER 10
PAYROLL TAXES
Discussion Questions
1. What type of compensation is subject to employer withholding?
Answer: Wages subject to withholding include all pay given to employees for services performed. The wages include salaries, vacation allowances, bonuses, commissions, and possibly fringe benefits.
2. Who completes Form W-4 and what is its purpose? What information does it provide to employers?
Answer: The Form W-4 is completed by the employee at the beginning of employment. The W-4 shows the number of withholding allowance requested by the taxpayer. The greater the number of withholding allowances, the smaller the amount of income tax that will be withheld from the employee’s check.
3. If a taxpayer makes $30,000 per year, will the annual withholding differ depending on whether the taxpayer is paid weekly, semimonthly, or monthly? Explain.
Answer: The annual withholding will not materially differ regardless of the pay period of the taxpayer. As the payroll period gets shorter, tax withholding per check will decrease, yet the total for the year will remain roughly the same.
4. If a taxpayer works more than one job, will the withholding from the various jobs necessarily cover his or her tax liability? Explain.
Answer: Generally, no. The withholding tables are designed to estimate the tax liability from the amount of the paycheck for a given pay period. If an individual receives $1,000 per week from each of two different employers, each employer will withhold based on a $1,000 per week salary. Since the individual’s wages are really $2,000/week, the employee will likely be in a higher tax bracket and the tax withheld will be too low.
5. What must the employer do if an employee claims more than 10 allowances or claims an exemption from withholding?
Answer: As of January 1, 2006, employers no longer have to submit Form W-4 to the IRS for individuals claiming more than 10
PAYROLL TAXES
Discussion Questions
1. What type of compensation is subject to employer withholding?
Answer: Wages subject to withholding include all pay given to employees for services performed. The wages include salaries, vacation allowances, bonuses, commissions, and possibly fringe benefits.
2. Who completes Form W-4 and what is its purpose? What information does it provide to employers?
Answer: The Form W-4 is completed by the employee at the beginning of employment. The W-4 shows the number of withholding allowance requested by the taxpayer. The greater the number of withholding allowances, the smaller the amount of income tax that will be withheld from the employee’s check.
3. If a taxpayer makes $30,000 per year, will the annual withholding differ depending on whether the taxpayer is paid weekly, semimonthly, or monthly? Explain.
Answer: The annual withholding will not materially differ regardless of the pay period of the taxpayer. As the payroll period gets shorter, tax withholding per check will decrease, yet the total for the year will remain roughly the same.
4. If a taxpayer works more than one job, will the withholding from the various jobs necessarily cover his or her tax liability? Explain.
Answer: Generally, no. The withholding tables are designed to estimate the tax liability from the amount of the paycheck for a given pay period. If an individual receives $1,000 per week from each of two different employers, each employer will withhold based on a $1,000 per week salary. Since the individual’s wages are really $2,000/week, the employee will likely be in a higher tax bracket and the tax withheld will be too low.
5. What must the employer do if an employee claims more than 10 allowances or claims an exemption from withholding?
Answer: As of January 1, 2006, employers no longer have to submit Form W-4 to the IRS for individuals claiming more than 10