Questions and Answers
What does the term 'wages' include?
What types of employee compensation are subject to withholding?
Wages and salaries, vacation allowances, supplemental payments, bonuses and commissions, taxable fringe benefits, tips, cash awards
What are fringe benefits?
Additional employee benefits paid for by the employer
What is flexible reporting?
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What are nontaxable fringe benefits?
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What is a de minimis fringe benefit?
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How may tip allocation be made?
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What is an accountable plan?
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What is a nonaccountable plan?
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What are pretax salary reductions?
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What is a cafeteria plan?
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What benefits are included in a cafeteria plan?
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What benefits cannot be included in a cafeteria plan?
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What is a flexible spending account?
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What is a health savings account?
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What is an archer medical savings account?
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What is a defined contribution plan?
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What is a tax-deferred retirement account?
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What is a 401k plan?
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What is a Section 403(b) plan?
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What is a Section 457(b) plan?
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What is a Simple Plan?
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What is an Individual Retirement Account (IRA)?
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What is a Roth IRA?
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What is a withholding allowance?
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What is a personal allowance?
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What is a special withholding allowance?
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What is Form W-4?
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What is Form W-4P?
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What is Form W-4S?
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What is Form W-4V?
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What is the percentage method for withholding?
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What is the wage-bracket method?
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What is a standard deduction?
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What is quarterly averaging?
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What is annualizing wages?
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What is part-year employment?
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What are supplemental wage payments?
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What is Gross-up?
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What is a Wage and Tax Statement?
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What is Form W-2?
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What is Form W-2C?
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What is Form W-3?
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What is Form W-3c?
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What is Circular E?
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What is an information return?
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What is Form 1096?
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What is backup withholding?
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What is Form 945?
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What is Form 4419?
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What are the three different methods of withholding?
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What is full taxation?
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What is leftover taxation?
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What is reciprocity withholding?
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What are periodic withholding returns?
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What is a reconciliation return?
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What are Annual Statements?
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What are Information Returns?
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What are the four main types of state income tax returns?
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Study Notes
Income Tax Withholding Overview
- Wages encompass total compensation for employee services.
- Employee compensation subject to withholding includes salaries, bonuses, and taxable fringe benefits.
Fringe Benefits
- Fringe benefits offered by employers cover various perks such as vehicles, travel discounts, and club memberships.
- Nontaxable fringe benefits consist of services at no extra charge, qualified discounts, and educational assistance.
Plans and Accounts
- An accountable plan requires employees to provide documentation for expense reimbursements, exempt from tax withholding.
- Nonaccountable plans do not meet documentation requirements and result in taxable reimbursement.
Tax-Advantaged Accounts
- Flexible spending accounts allow employees to set aside pretax earnings for eligible expenses.
- Health savings accounts are tax-advantaged accounts meant exclusively for medical expenses, tied to a high-deductible insurance plan.
- Individual retirement accounts (IRAs) provide deferred tax benefits for retirement savings.
Withholding Allowances and Certificates
- Withholding allowances, claimed on Form W-4, determine how much tax to withhold from paychecks.
- Form W-2 summarizes employee earnings and tax withheld for the year.
Tax Calculation Methods
- Methods for calculating tax withholding include the percentage method (using allowance values) and wage-bracket method (based on specific pay periods).
- Annualizing wages involves multiplying pay by the number of periods to determine total annual withholding.
Reporting Requirements
- Employers use various forms to report withheld taxes, including Form 945 for non-payroll items and Form 1096 for transmitting information returns.
- Information returns help the IRS verify taxpayer income, particularly for non-employees.
Withholding Methods Based on State Guidelines
- Full taxation involves calculating taxes from both the work and resident states without credits.
- Leftover taxation applies full tax to the work state and additional to the resident state.
- Reciprocity withholding allows for tax withholding based on agreements between states to avoid double taxation.
Annual Statements and Reconciliation
- Annual statements inform employees about total wages and taxes withheld.
- Reconciliation returns compare total state taxes paid with amounts declared withheld from wages.
Key Forms and Guidelines
- Circular E serves as a tax guide for employers, providing essential withholding information before the new year.
- Form W-4P is for pension payments, while Form W-4S relates to sick pay tax withholding.
- Form W-4V is used for voluntary withholding on government payments.
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Description
Test your knowledge on Chapter 4 concerning income tax withholding. This quiz covers key terms such as wages, employee compensation, and fringe benefits. Perfect for students and professionals seeking to understand compensation and tax obligations.