Fundamentals of Taxation 2019 Edition 12th Edition Cruz Solutions Manual

Fundamentals of Taxation 2019 Edition
12th Edition Cruz Solutions Manual

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Solutions Manual
CHAPTER 10 – SOLUTIONS
END OF CHAPTER MATERIAL
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 taxable fringe benefits.
Learning Objective: 10-02
Topic: Tax Issues Associated with Payroll
Difficulty: 1 Easy
EA: No
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 filing status and number of withholding allowances 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 paycheck.
Topic: Income Tax Withholding from Wages
Difficulty: 1 Easy
EA: No
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.
Difficulty: 1 Easy
EA: No
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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.
Difficulty: 2 Medium
EA: No
5. In addition to federal tax withholding, what other taxes are employers required to
withhold from an employee’s paycheck? How are the calculations made?
Answer:
FICA taxes – social security of 6.2% on wages up to $128,400 in 2018 and Medicare
taxes of 1.45% for all wages. Employers will also withhold state and/or local income
taxes if applicable.
Topic: FICA Taxes – Social Security and Medicare Tax Withholding
Difficulty: 1 Easy
EA: No
6. Who pays FICA? What are the percentages and limits on the payments?
Answer:
A total of 15.3% of wages are paid for FICA (up to $128,400 in wages for social
security). The employer pays 6.2% for social security and 1.45% for Medicare. The
employee pays his/her share of 6.2% for social security and 1.45% for Medicare
through withholding. The total social security percentage is 12.4% on the first
$128,400 of wages and the total Medicare percentage is 2.9% (on an unlimited wage
amount).
EA: No
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7. When are employees required to report tips to their employer? Are tips subject to the
same withholding requirements as regular salary?
Answer:
Employees are required to report cash tips to their employer by the 10th of the
month after the month in which the employee receives the tips. Employees can use
Form 4070 to report tips. Tips are subject to withholding of income taxes, social
security, and Medicare taxes.
Topic: Tips
Difficulty: 1 Easy
EA: No
8. What are the tip reporting requirements for large food and beverage establishments?
Answer:
For a large food establishment (more than 10 employees), employers must allocate
tips to employees if employees do not report tips in an amount of at least 8% of
gross receipts.
Topic: Tips
EA: No
9. When must employers make payroll tax deposits?
Answer:
The frequency of the deposits depends on the amounts withheld and owed to the
government. Generally, employers deposit taxes either monthly or semiweekly. The
determination is made with reference to a lookback period, or accumulation of a
$100,000 tax liability on any day.
Topic: Payment of Payroll Taxes
Difficulty: 1 Easy
EA: No
10. What is a lookback period?
Answer:
The lookback period is four quarters beginning July 1 of the second-preceding year
through June 30 of the preceding year. If the total in payroll taxes is $50,000 or less,
the employer is a monthly schedule depositor. If the total in taxes is greater than
$50,000, the employer is a semiweekly depositor.
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EA: No
11. When must monthly and semiweekly schedule depositors make their deposits? What
taxes must be deposited?
Answer:
Monthly depositors are required to deposit payroll taxes on or before the 15th day of
the following month. For semiweekly depositors with payrolls paid on a
Wednesday, Thursday, or Friday, taxes must be deposited by the following
Wednesday. For payrolls paid on Saturday, Sunday, Monday, or Tuesday, the
semiweekly depositor must deposit the taxes no later than the following Friday.
The taxes that must be deposited are income taxes, social security taxes, and
Medicare taxes.
Difficulty: 3 Hard
EA: No
12. What are the penalties for not making timely payroll deposits?
Answer:
The penalties are based on the amount not properly or timely deposited. The penalties
are:
2% for deposits made 1 to 5 days late.
5% for deposits made 6 to 15 days late.
10% for deposits made 16 or more days late, but before 10 days from
due date of the first notice the IRS sent asking for the tax due.
10% if electronic deposits are required but not used.
10% for deposits paid directly to the IRS, paid with the return or to
an unauthorized financial institution.
15% for amounts unpaid more than 10 days after the date of the first
notice the IRS sent asking for the tax due.
Topic: Deposit Penalties
EA: No
13. If a business fails to make payroll deposits, who is held responsible?
Answer:
The employer is held responsible. The employers withhold taxes from the employee
and are held to a high level of responsibility. An individual employee (i.e., an
employee of a corporation) responsible for collecting, accounting for, and paying the
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tax may be held individually responsible for the tax if he or she acted willfully in not
paying the taxes.
EA: No
14. How often must employers report payroll taxes to the IRS? What form must the
employer file?
Answer:
Employers must provide quarterly reports to the IRS on Form 941. The report is
due no later than the last day of the month following the end of the quarter.
Topic: Reporting Payroll Tax and Form 941
Difficulty: 1 Easy
EA: No
15. Why are self-employed taxpayers allowed a deduction for self-employment tax in
determining adjusted gross income (AGI)?
Answer:
This deduction gives the sole proprietor a share of the employer tax expense that
would be allowed for corporate businesses.
Topic: Reporting Payroll Taxes and Form 941
EA: No
16. What is the FUTA tax, and at what percentage is it assessed?
Answer:
FUTA is the Federal Unemployment Tax Act. The rate is 6.0% of employee wages
up to $7,000. Employers get a credit for state unemployment taxes paid of up to
5.4%. Thus, the effective federal rate is 0.6% if the maximum state tax is paid on a
timely basis.
Topic: Reporting Payroll Taxes and Form 940
Difficulty: 1 Easy
EA: No
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17. What individuals are subject to the payroll taxes on household employees?
Answer:
Individuals employing household workers are subject to payroll tax rules if any of the
following are true during a year:
• they paid any one household employee wages of $2,100 or more,
• federal income taxes were withheld from employee wages,
• household wages of at least $1,000 were paid to all household workers
combined.
Taxpayers do not owe payroll taxes if the individual doing the household work is an
independent contractor and works for others as well.
Topic: Household Employees
EA: No
18. How are household payroll taxes reported? When are they due?
Answer:
Instead of filing a Form 941 and Form 940, individuals who employ household
employees report the employment taxes on Schedule H and file it with their Form
1040. Thus, these payroll taxes are due when the Form 1040 is due (normally April
15th plus any extensions filed).
Difficulty: 1 Easy
EA: No
19. How does an employer report wages to the employee, the federal government, and
the Social Security Administration? When is this notification due?
Answer:
The wage information is reported via a Form W-2. The W-2 has multiple copies
that are sent to the employee, the federal government, the state government, and the
Social Security Administration. The employer must mail each employee his or her
W-2 no later than January 31. The employer must file W-2 and W-3 to the Social
Security Administration no later than January 31st.
Topic: Employer Payroll Reporting to Employees
Difficulty: 1 Easy
EA: No
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20. What are the penalties imposed on employers for filing incorrect W-2s?
Answer:
$50 per return if the W-2 is filed within 30 days of the due date, $100 per return if
the W-2 is filed between 30 days late and August 1, $270 per return if the W-2 is
filed after August 1.
Also, a penalty of $540 per return for intentional disregard of filing requirements,
providing payees with incorrect statements, or reporting incorrect information.
There are also maximum penalties ranging from $191,000 - $1,091,500 for small
businesses and $545,500 - $3,275,500 for all other businesses.
Topic: Employer Payroll Reporting to Employees
EA: No
21. What are supplemental wage payments?
Answer:
Supplemental wage payments are compensation paid in addition to an employee’s
regular wages and include vacation pay, commissions, bonuses, accumulated sick
pay, severance pay, taxable fringe benefits, and expense allowances paid under a
nonaccountable plan.
Topic: Supplemental Wage Payments
Difficulty: 1 Easy
EA: No
22. Explain the two methods for income tax withholding on supplemental wage
payments.
Answer:
Method 1:
If taxes are withheld from the employee’s wages, the employer can elect to
withhold a flat 22% on the supplemental payment, or the employer can add
both payments and withhold as if the total was a single payment. Subtract
the tax already withheld from the regular wages. The remaining tax is
withheld from the supplemental payment.
Method 2:
If taxes are not withheld from the employee’s wages, add the supplemental
and regular wages together and calculate the withholding tax as if they are a
single payment. This can occur when the value of the employee’s
withholding allowances claimed on the W-4 are more than the wages.
Topic: Supplemental Wage Payments
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EA: No
23. Explain the provisions of backup withholding and the conditions under which an
employer must comply with these provisions.
Answer:
Payments subject to backup withholding include interest, dividends, rents, royalties,
commissions, nonemployee compensation, and certain other payments made in the
course of a trade or business. Certain payments made by broker and barter
exchanges as well as certain payments made by fishing boat operators are subject to
backup withholding. The rate is a flat 24% of taxable payments.
Payments received by a taxpayer are subject to backup withholding if any of the
following is true:
• the taxpayer does not furnish a TIN to the requester
• the IRS tells the requester that a taxpayer has furnished an incorrect TIN
• the IRS informs the payee that he/she is subject to backup withholding
due to non-reporting of any interest and dividends on a tax return
• the payee did not certify to the requester that he/she was not subject to
backup withholding.
Topic: Backup Withholding
EA: No
24. What is a Form W-9? Why must this form be filed?
Answer:
Form W-9 is used to provide a Taxpayer ID Number to a third party. Anyone who
is required to file an information return with the IRS must supply the payer with a
correct TIN. The form is used by a U.S. person (or resident alien) to
• Certify that the TIN the taxpayer is giving is correct
• Certify that the taxpayer is not subject to backup withholding or
• Claim exemption from backup withholding if the taxpayer is a U.S.
exempt payee.
Topic: Form W9
Difficulty: 1 Easy
EA: No
25. Explain the purpose of Form 1040-ES. Under what conditions are taxpayers required
to file 1040-ES? When is Form 1040-ES filed?
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Answer:
The purpose of Form 1040-ES is for the taxpayer to remit additional payments for
potential tax liability in the event the taxpayer believes insufficient taxes will be paid
during the year.
The form is required if the taxpayer expects his/her withholding and credits to be
less than the smaller of:
• 90% of the tax shown on the taxpayer’s current year return or
• 100% of the tax shown on the taxpayer’s prior year return (the 100%
amount changes to 110% if the adjusted gross income shown on the
prior year return is more than $150,000 or $75,000 if married filing
separately).
The taxpayer uses the 1040-ES coupons to make estimated payments throughout the
year. They are due April 15, June 15, September 15, of the current year and
January 15 of the following year.
Topic: Estimated Tax Payments and Form 1040-ES
EA: No
Multiple Choice
26. Employees claim withholding allowances on Form W-4. Each withholding

allowance claimed lowers their annual withholding base by what amount for calendar
year 2018?
a. $4,050.
b. $4,100.
c. $4,150.
d. $4,200.
Answer: c
Difficulty: 1 Easy
Feedback: The withholding allowance for2018 is $4,150.
EA: No
27. Ely is single and is paid $1,240 per week and claims one allowance. What is the
amount of federal income tax withheld on Ely’s gross wages for the week? Use the wage
bracket table in the Appendix at the end of the chapter.
a. $160.
b $163.
c. $178.
d. $180.
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Answer: b
Difficulty: 1 Easy
Feedback: Use chart for single person, weekly payroll, choose range $1,240 – 1,250
for one allowance. The intersection is at $163
EA: No
28. Marla is married, is paid $3,125 semimonthly, and claims four withholding
allowances. What is the amount of federal income tax withheld on Marla’s gross wages
for the semimonthly period? Use the percentage method table in the Appendix at the end
of the chapter.
a.$218,41.
b.$224.79.
c.$313.69.
d.$320.07.
Answer: a
Difficulty: 1 Easy
Feedback: 4 exemptions x $172.90 = $691.60. $ 3,125.00 - $691.60 - $2,433.40 -
$1,275.00 = $1,158.40 x 12% = $139.01 + $79.40 = $218.41.
EA: No
29. Erica earned $129,800 during 2018. How much will her employer withhold from
her, in total, for FICA taxes?
a. $9,754.00.
b. $9,842.90.
c. $9,900.40.
d. $9,929.70.
Answer: b
Topic: FICA Taxes- Social Security and Medicare Tax Withholding
Difficulty: 1 Easy
Feedback: Social Security tax calculated at $128,400 x 6.2% = $7,960.80 + Medicare
tax calculated at $129,800 x 1.45% = 1,882.10. The total FICA taxes withheld from
Erica is $ $9,842.90
EA: No
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30. Adenike has two jobs and earned $ 110,000 from her first job and $20,000 from her
second job. How much total FICA taxes will Adenike have withheld from her wages
from working two jobs?
a. $9,730.80.
b. $9,732.00.
c. $9,771.40.
d. $9,945.00.
Answer: d
Feedback: Each employer is required to withhold FICA taxes for each employee.
Therefore, the total FICA taxes withheld from Adenike will be $130,000 x 7.65% =
$ 9,945.00 If the amount of earnings subject to social security tax exceeds the
$128,400 threshold, the employee will claim this as additional payments on the
Form 1040.
EA: No
31. Carlos earned a total of $225,000 for 2018. How much in FICA tax will his employer
be required to withhold in his name?
a. $11,223.30
b. $11,373.90.
c. $11,448.30.
d. $11,484.30.
Answer: c
Difficulty: 3 Hard
Feedback: $128,400x 6.2% = $7,960.80 in OASDI; $225,000 x 1.45%= $3,262.50;
plus, the 0.9% additional Medicare Tax Withholding x $25,000 excess wages =
$225.00 for a total amount of $11,448.30
EA: No
32. Dewoun has two jobs, and both employers withheld FICA tax. From his first job, he
earned $102,100, and from his second job, he earned $30,300. How much can Dewoun
claim as an additional payment on his Form 1040 as excess social security paid in 2018?
a $0.
b. $74.40.
c. $192.20.
d. $248.00.
Answer: d
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Feedback: Each employer is required to withhold FICA tax. If the total amount of
OASDI earnings is over $128,400, the excess OASDI tax withheld from the
employers is claimed as additional payments on Form 1040 of the taxpayer.
Dewoun would look at his W-2 statements to get this information. $102,100 +
$30,300 = $132,400; $132,400 – 128,400= $4,000 x 6.2% = $248.00.
EA: No
33. Carmen earned $75 in tips in September. When must she inform her employer of her
tips on Form 4070 for federal income tax and FICA withholding purposes?
a. By September 30.
b. By October 10.
c. By October 31.
d. She is not subject to payroll taxes on tips of less than $80 in any one month.
Answer: b
Topic: Tips
Difficulty: 1 Easy
Feedback: Employees are required to report cash tips to their employer by the 10th
of the month after the month in which the employee receives the tips.
EA: No
34. In a large food or beverage establishment, any tip shortfall from a directly tipped
employee is recorded on the employee’s W-2 as
a. W-2 box 8 - Allocated tips.
b. W-2 box 14 - Other.
c. W-2 box 1- Wages, tips, other compensation.
d. W-2 box 7 - Social security tips.
Answer: a
Topic: Tips
Difficulty: 1 Easy
Feedback: On the W-2 box 8 – Allocated tips.
EA: No
35. An employer will prepare Schedule B of Form 941 under which circumstances?
a. Line 12 on the Form 941 is less than $2,500.
b. The employer is a semi-monthly depositor.
c. The employer is a monthly depositor.
d. The employer is a semi-weekly depositor.
Answer: d
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Difficulty: 1 Easy
Feedback:
If the employer is a semi-weekly depositor, Schedule B must be completed. The total
of the liability will equal line 12 on Form 941.
EA: No
36. Lauer Company started its business on July 24, 2018. On August 10, it paid wages
for the first time and accumulated a tax liability of $48,000. On Friday, August 17, it
incurred a tax liability of $52,000. How is Lauer Company treated as a depositor?
a. Monthly because new companies do not have a lookback period.
b. Semiweekly because its accumulated tax liability is $100,000.
c. Monthly because its accumulated tax liability is not more than $100,000 on any one
day.
d. Semiweekly for this pay period only and then monthly for the remainder of the year.
Answer: b
Feedback: This company started its business in 2018 and does not have a look back
period; therefore it is a semiweekly depositor.
EA: No
37. What is the penalty for sending a required tax payment (unless specifically allowed)
directly to the Internal Revenue Service?
a. 2% .
b. 5%.
c. 10%.
d. 15%.
Answer: c
Feedback: To ensure employers remit their payroll tax payments through the
EFTPS system, the IRS charges a penalty to employers who do not comply.
EA: No
38. A semiweekly schedule depositor’s payroll period ends and is paid on Friday, June
24. The depositor (employer) must deposit the federal taxes for this pay period on or
before
a. The following Wednesday.
b. The following Friday
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c. June 25.
d. June 28.
Answer: a
Difficulty: 1 Easy
Feedback: For payroll paid on a Friday, the depositor must deposit the taxes by the
following Wednesday.
EA: No
39. To what amount of employer tax accumulation does the one-day deposit rule apply?
a. $75,000.
b. $100,000.
c. More than $100,000.
d. An amount between $75,000 and $99,999.
Answer: b
Difficulty: 1 Easy
Feedback: The one-day rule applies to tax liability accumulation of $100,000.
EA: No
40. Employers are required to deposit FUTA taxes when their liability exceeds
a. $100.
b. $500.
c. $1,000.
d. $1,500.
Answer: b
Topic: Unemployment Employer Taxes
Difficulty: 1 Easy
Feedback: For each quarter where FUTA taxes exceed $500, the employer must
remit the tax using the EFTPS system.
EA: No
41. Household employees are subject to FICA withholding if they are paid at least what
amount during any calendar quarter in 2018?
a. $1,800.
b. $1,900
c. $2,000.
d. $2,100.
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Answer: d
Difficulty: 1 Easy
Feedback: Household employees are subject to FICA withholding if paid at least
$2,100 during any calendar quarter in 2018.
EA: No
42. Employers pay a maximum federal unemployment tax of 6.0% on how much of an
employee’s taxable wages for 2018?
a. $1,800.
b. $3,800.
c. $5,800.
d. $7,000.
Answer: d
Difficulty: 1 Easy
Feedback: Employers are responsible for remitting FUTA taxes of 6.0% of the first
$7,000 of taxable wages.
EA: No
43. Carlos has two jobs; he is an attorney (not a partner) in a law firm and he has a small
legal practice (sole proprietorship) providing real estate legal services. How does he
compute his federal income tax for the year?
a. His wages from the law firm are taxed as an employee, as are his wages from the
private practice.
b. His wages from the law firm are considered self-employment, as are the earnings from
his private practice.
c. His wages from the law firm are taxed as an employee, and his earnings from his
private practice are taxed as a self-employed proprietor.
d. His wages from the law firm are taxed as an employee, and his earnings from self-
employment are taxed up to the maximum for social security only.
Answer: c
Topic: Self-Employment Taxes
Difficulty: 1 Easy
Feedback: The taxpayer computes the federal income tax from his W2 income at the
law firm and then as self-employment taxes for his real estate legal services income.
EA: No
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44. Adrienne is a self-employed attorney. She has net earnings (profit) from her practice
of $106,800. Her self-employment taxes for the year are:
a. $13,117.76.
b. $13,338.85.
c. $14,204.40.
d. $15,090.36.
Answer: d
Topic: Self-Employment Taxes
Feedback: Only 92.35% of the net earnings from self-employment are taxed at the
15.3% rate. $106,800 x 92.35% = $98,629.80 x 15.3% = $15,090.36
EA: No
45. Carol works for ABC Company and earned $63,000 for the entire 2018 year. How
much in FUTA tax is her employer required to withhold in her name? Assume that the
employer receives the maximum credit for state unemployment taxes.
a. $0.
b. $42.00.
c. $43.40.
d. $420.00.
Answer: b
Learning Objective:10-04
Difficulty: 1 Easy
Feedback: Only the first $7,000 is subject to FUTA tax. The rate is 6.0%, however
if the employer receives the maximum credit of 5.4%, the FUTA rate goes down to
0.6%. The employer remits FUTA tax for the first $7,000 of wages at the rate of
0.6% = $42.00.
EA: No
46. On January 3, 2018, Jane employed a part-time household worker in her home. She
paid the household worker $350 per month for 2018. What amount of FICA tax is Jane
required to record on Schedule H?
a. $237.30.
b. $321.30.
c. $558.60.
d. $642.60.
Answer: d
Difficulty: 1 Easy
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Feedback: Jane must pay 15.3% total FICA tax on $4,200 of earnings for her part-time
household worker in the amount of $642.60. Jane will file Schedule H with her Form
1040.
EA: No
47. A taxpayer with 2018 AGI of $160,000 has no income tax withholding and is
required to pay estimated taxes. The taxpayer can avoid an underpayment penalty by
paying
a. At least 90% of the 2018 tax liability ratably over four quarterly payments.
b. At least 110% of the 2018 tax liability ratably over four quarterly payments.
c. At least 90% of the 2017 tax liability ratably over four quarterly payments.
d. 100% of the 2018 tax liability ratably over four quarterly payments.
Answer: a
Topic: Estimated Tax Payments
Feedback: The safe harbor percentages are different if the taxpayer earned
$150,000 or less ($75,000 or less if married filing separately) or more than $150,000
($75,000 if married filing separately). In this situation the taxpayer must remit at
least 90% of the 2018 tax liability ratably over four quarterly payments.
EA: No
48. Adam received a bonus of $5,000 from his employer. Which one of the following
federal income withholding tax amounts is not in accordance with IRS rules regarding
supplemental wage payments? Adam earns biweekly wages of $4,000, is single, and
claims one allowance. Assume his employer uses the percentage method of withholding.
a. $1,441.39 on his bonus if taxes had already been withheld from his regular pay.
b. $1,575.84 if his bonus and wages are paid on different dates within the pay period.
c. $1,767.92 if his bonus is taxed at the supplemental wage percentage and added to his
regular wages paid in the same period.
d. $2,109.31if his bonus and wages are paid at the same time during the pay period.
Answer: b
Topic: Supplemental Wages
Difficulty: 3 Hard
Feedback: All the options are acceptable except option b. If taxes have already been
withheld from his regular pay, the amount of taxes for his bonus paid during the
pay period but on a different day cannot be taxed separately from his regular pay.
EA: No
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Problems
49. Allison is paid $1,325 per week. What is the amount of federal income tax withheld
from Allison’s paycheck under the following conditions? Use the percentage method
table in the Appendix to this chapter.
a. Allison is single and claims two withholding allowances

b. Allison is married and claims two withholding allowances
c. Allison is single and claims no withholding allowance.
Answer:
a. $ 162.71
b. $ 105.89
c. $ 197.82
Difficulty: 1 Easy
Feedback:
In general take the wages and subtract the withholding allowances allowed; follow
the chart for the remaining calculations.
a. $1,325.00 - $159.60 = $1,165.40 – 815.00 = $350.40 x 22% = $77.09 + $85.62 =
$162.71.
b. $1,325.00 - $159.60 = $1,165.40 - $588.00 = $577.40 x 12% = $69.29 + $36.60 =
$105.89.
c. $1,325.00 - $815.00 = $510.00 x 22% = $112.20 + $85.62 = $197.82.
EA: No
50. Martin is married and claims four exemptions on his W-4. What is his federal
income tax withholding under the following conditions? Use the percentage method table
in the Appendix to this chapter.
a. Martin is paid semimonthly, and his gross pay is $3,600 per paycheck.
b. Martin is paid monthly, and his gross pay is $6,700 per paycheck.
c. Martin is paid weekly, and his gross pay is $4,750 per paycheck.
Answer:
a. $$275.41
b. $490.72
c. $790.43
Difficulty: 2
Feedback:
a. 4 exemptions x $172.90 = $691.60; using the chart for married and paid semimonthly
wages:
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$3,600.00 - $691.60 = $2,908.40 - $1,275.00 - $1,633.40 x 12% = $196.01 + $79.40 =

$275.41
b. 4 exemptions x $345.80 = $1,383.20; using the chart for married and paid
monthly wages:
$6,700.00 - $1,383.20 = $5,316.80 - $2,550.00 = $2,766.80 x 12% = $332.02 + $158.70
= $490.72.
c. 4 exemptions x $79.80 = $319.20; using the chart for married and paid weekly
wages:
$4,750.00 - $319.20 = $4,430.80 - $3,395.00 = $1,035.80 x 24% = $248.59 + $541.84 =
$790.43
EA: No
51. Lisa earns $65,000 per year. She is married and claims three allowances. Use the
wage bracket tables available online in Publication 15 (Circular E) Employers Tax Guide.
a. If she is paid weekly, what is her withholding per paycheck?

b. If she is paid monthly, what is her withholding per paycheck?
c. If she is paid biweekly, what is her withholding per paycheck?
d. If she is paid semimonthly, what is her withholding per paycheck?
Answer:
a. $87.00
b. $377.00
c. $174.00
d. $190.00
Feedback:
a. $65,000/52 weeks = $1,250.00.
Find the wage table for weekly, married, and where $1,250.00 fits in the range; find
the intersection with 3 withholding allowances. $87.00.
b. $65,000/12 months = $5,416.67.
Find the wage table for monthly, married, and where the $5,416.67 fits in the range;
find the intersection with 3 withholding allowances. $377.00.
c. $65,000/26 biweekly = $2,500.00.
Find the wage table for biweekly, married, and where $2,500.00 fits in the range;
find the intersection with 3 withholding allowances. $174.00.
d. $65,000/ 24 semimonthly = $2,708.33.
Find the wage table for semimonthly, married and where the $2,708.33 fits in the
range; find the intersection with 3 withholding allowances. $190.00.
EA: No
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Solutions Manual
52. Henry, who earned $113,840 during 2018, is paid on a monthly basis, is married, and
claims four allowances. Use the percentage method table in the Appendix to this chapter.
a. What is Henry’s federal tax withholding for each pay period?

b. What is Henry’s FICA withholding for each pay period?
Answer:
a. $ 894.16
b. $ 725.73
Topic: Income Tax and FICA Withholding from Wages
Feedback:
a. $113,840/12 months = $9,486.67
4 allowances x $345.80 = $1,383.20;
$9,486.67 - $1,383.20 = $8,103.47- $7,413.00 = $690.47 x 22% = $151.90 + $742.26 =
$894.16
b. OASDI = $9,486.67 x 6.2% = $588.17 per month;
Medicare = $9,486.67 x 1.45% = $137.56 per month.
Total FICA withheld = $588.17 + $137.56 = $725.73
EA: No
53. Roberto’s salary is $129,600 in 2018. Roberto is paid on a semimonthly basis, is

single, and claims one allowance. Use the percentage method table in the Appendix to
this chapter.
a. What is Roberto’s federal tax withholding per pay period?

b. What is Roberto’s FICA withholding per pay period before he reaches the social
security limit?
c. For the last pay period in 2018, what is Roberto’s FICA withholding?
Answer:
a. $ 979.54
b. $ 413.10
c. $ 338.70
Feedback:
a. Using the percentage table for semimonthly and single status.
$ $129,600/24 periods = $5,400.00 One allowance = $172.90.
$5,400.00 - $172.90 = $5,227.10 - $3,592.00 = $1,635.10 x 24% = $392.42 + $587.12 =
$979.54.
b. OASDI = $5,400.00 x 6.2% = $334.80 Medicare = $5,400.00 x 1.45% = $78.30
For FICA total = $334.80 + $78.30 = $413.10
10-20
Solutions Manual
c. For the last pay period only $4,200 of the $5,400 is subject to OASDI; $4,200 x 6.2%
= $260.40. The entire $5,400 is subject to Medicare tax of 1.45% = $78.30. Therefore,
for the last pay period total FICA tax is $338.70.
EA: No
54. Baker Company is trying to determine how often it needs to deposit payroll taxes for
calendar year 2018. The company made the following quarterly payroll tax deposits
during the last two years:
Quarter beginning January 1, 2016…………….……. $ 10,000
Quarter beginning April 1, 2016………….…….. . 10,000
Quarter beginning July 1, 2016…………….……….. 11,000
Quarter beginning October 1,2016. . .…..………… 12,000
Quarter beginning January 1, 2017. . .………............. 12,000
Quarter beginning April 1, 2017. . . . . . . . . ….……… 12,000
Quarter beginning July 1, 2017. . . . ………….……. 11,000
Quarter beginning October 1, 2017. . . …..………….. 12,000
a. What is the amount from the lookback period?

b. In 2018 how often must Baker Company make payroll deposits?
Answer:
a. $47,000
b. Monthly
Difficulty: 1 Easy
Feedback:
a. Quarters beginning July 1,2016– April 1, 2017 for a total of $47,000
b. The lookback period totals were $47,000; this is less than the $50,000 threshold,
so Baker is a monthly schedule depositor.
EA: No
55. CFG Company has the following employees:

Wages Paid
Eddie $12,000
Melanie 6,000
Shelly 22,000
CFG receives the maximum credit for state unemployment taxes. What is the FUTA tax
that CFG Company would owe for the year?
Answer: $120
10-21
Solutions Manual
Difficulty: 1 Easy
Feedback:
The FUTA rate is 6.0% and CFG received the maximum credit for state
unemployment taxes of 5.4%, therefore they are responsible for .6% (6.0% - 5.4%).
The text used the decimal format; .6% = 0.006; either way is acceptable.
Eddie: $12,000 limited to $7,000 x .6%= $42
Melanie: $6,000 x .6% = $36
Shelly: $22,000 limited to $7,000 x .6% = $42
Total FUTA tax owed $120
EA: No
56. Jacob Turner hired Jen Hatcher as a housekeeper starting on January 2 at $750 per
month. Jacob does not withhold any federal taxes. Assume that Jen is not a housekeeper
for anyone else. Assume Jacob paid $2,250 in wages for the fourth quarter of 2018.
a. How much in social security tax should Jacob pay?

b. How much in Medicare tax should Jacob pay?
c. How much in FUTA tax should Jacob pay?
Answer:
a. $1,116.00
b. $261.00
c. $42
Feedback:
a. $750x 12 months = $9,000.00; $9,000.00x 12.4% = $1,116.00
b. $750.00x 12 months = $9,000.00; $9,000.00x 2.9% = 261.00
c. 750.00 x 12 months = $9,000.00- $; 7,000.00 x 0.6% = $42.00. Only the first $7,000
is subject to FUTA tax.
EA: No
57. Lauprechta Inc. has the following employees on payroll:
Semimonthly Withholding Marital

Payroll Allowances Status
Naila $5,800 4 Married
Wilfred $5,000 3 Married
Byron $3,200 1 Single
Annie $3,600 2 Single
Complete the table for taxes to be withhold for each pay period.
10-22
Solutions Manual
Employee Federal Social Medicare Total Taxes

Withholding Tax Security Tax Tax Withheld
Naila
Wilfred
Byron
Annie
Answer:
Employee Federal Social Medicare Total Taxes

Withholding Tax Security Tax Tax Withheld
Naila $ 679.65 $ 359.60 $ 84.10 $ 1,123.35
Wilfred $ 541.69 $ 310.00 $ 72.50 $ 924.19
Byron $ 462.82 $ 198.40 $ 46.40 $ 707.62
Annie $ 512.80 $ 223.20 $ 52.20 $ 788.20

Difficulty: 3 Hard
EA: No
Feedback:
Naila:
Federal Withholding: $5,800.00 - $691.60 = $5,108.40 - $3,706.00 = $1,402.40 x 22% =
$308.53 + $371.12 = $679.65
Social Security: $5,800.00 x 6.2% = $359.60.
Medicare: $5,800.00 x 1.45% = $84.10.
Total Withholding: $679.65 + $359.60 + $84.10 = $1,123.35.
Wilfred:
Federal Withholding: $5,000.00 - $518.70 = $4,481.30 - $3,706.00 = $775.30 x 22% =
$170.57 + $371.12 = $541.69.
Medicare: $5,000.00 x 1.45% = $72.50.
Total Withholding: $541.69 + $310.00 + $72.50 = $924.19.
Byron:
Federal Withholding: $3,200.00 - $172.90 = $3,027.10 - $1,767.00 = $1,260.10 x 22% =
$277.22 + $185.62 = $462.84
Social Security: $ 3,200.00 x 6.2% = $198.40.
Medicare: $3,200.00 x 1.45% = $46.40.
Total Withholding: $462.84 + $198.40 + $46.40 = $707.64.
10-23
Solutions Manual
Annie:
Federal Withholding$3,600.00 - $345.80 = $3,254.20 - $1,767.00 = $1,487.20 x 22% =
$327.18 + $185.62 = $512.80.
Medicare: $3,600.00 x 1.45% = $52.20.
Total Withholding: $ 512.80 + $223.20 + $52.20 = $788.20
10-24

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Fundamentals of Taxation 2019 Edition 12th Edition Cruz Solutions Manual

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Fundamentals of Taxation 2019 Edition

12th Edition Cruz Solutions Manual

9. When must employers make payroll tax deposits?

10. What is a lookback period?

Topic: Payment of Payroll Taxes

13. If a business fails to make payroll deposits, who is held responsible?

16. What is the FUTA tax, and at what percentage is it assessed?

24. What is a Form W-9? Why must this form be filed?

26. Employees claim withholding allowances on Form W-4. Each withholding

Topic: FICA Taxes – Social Security and Medicare Tax Withholding

Learning Objective: 10-03

a. Allison is single and claims two withholding allowances

$3,600.00 - $691.60 = $2,908.40 - $1,275.00 - $1,633.40 x 12% = $196.01 + $79.40 =

a. If she is paid weekly, what is her withholding per paycheck?

a. What is Henry’s federal tax withholding for each pay period?

53. Roberto’s salary is $129,600 in 2018. Roberto is paid on a semimonthly basis, is

a. What is Roberto’s federal tax withholding per pay period?

a. What is the amount from the lookback period?

55. CFG Company has the following employees:

a. How much in social security tax should Jacob pay?

57. Lauprechta Inc. has the following employees on payroll:

Semimonthly Withholding Marital

Employee Federal Social Medicare Total Taxes

Employee Federal Social Medicare Total Taxes

Learning Objective: 10-02

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