Topic 26 - Tax Withholding and Estimated Tax

1. Look at the Form 1040 you prepared for Eleonor Gwen. What is the amount on Form 1040, Line 76?

a. $ 12,980.
b. $ 15,380.
c. $ 2,400. 
d. None of the above.

2. Look at the Form 1040 you prepared for Eleonor Gwen. What is the amount on Form 1040, Line 77?

a. $ 1,980.
b. $ -0-.
c. $ 240. 
d. $ 1,538.

3. You must make estimated tax payments for 2007 if you expect to owe at least $1,000 in tax year 2008, after subtracting your withholding and credits, and you expect your withholding and credits to be less than the smaller of: (1) 90% of the tax to be shown on your 2006 tax return, or (2) 100% of the tax shown on your 2007 tax return (110% if your AGI is over $150,000).

True False

4. If you had income tax withheld during 2007, you should receive a statement by January 31, 2008, showing your income and the tax withheld. Depending on the source of your income, you will receive:

a. Form W-2, Wages and Tax Statement.
b. Form W-2G, Certain Gambling Winnings.
c. A form in the 1099 series.
d. Any of the above.

5. Sue must make estimated tax payments of $4,000 for tax year 2008. She makes the following payments:

    1st payment - $1,000 on April 20, 2007.

    2nd payment - $1,000 on May 31, 2007.

    3rd payment - $1,000 on September 1, 2007.

    4th payment - $1,000 January 10, 2008.   

a. She has not made timely payments because her 1st payment was not made by April 15th.
b. She has not made timely payments because her 2nd payment was not made by June 15th.
c. She has made timely estimated payments.
d. She has not made any timely payments because none of the payments were made by the required IRS schedule.

6. Income tax is withheld at a flat rate from certain kinds of gambling winnings. Gambling winnings from any sweepstakes, wagering pool, or lottery, or any other wager if the proceeds are at least 300 times the amount of the bet, are subject to income tax withholding if the winning are more than

a. $3,050.00
b. $5,000.00
c. $600.00
d. $1,500.00

7. Marge Godfrey sold her investment property March 30, 2007 at a gain of $50,000. Marge expects to owe $10,000 in additional income taxes on this sale. She had a tax liability of $900 for 2006 and will have no withholding for 2007. Marge's first estimated tax payment is due on what date?

a. April 30, 2007.
b. April 15, 2007.
c. January 31, 2008.
d. June 15, 2007.

8. The tips you receive while working on your job are considered to be part of your pay. Your employer will take into account the tips you report when figuring how much to withhold from your regular pay. You employer can figure your withholding by

a. Withholding at the regular rate on the sum of your pay plus your reported tips.
b. Withholding at the regular rate on your pay plus a percentage of your reported tips.
c. Withholding as much social security tax, Medicare tax, or railroad retirement tax as possible.
d. Both A and B above.

9. Susan, a single filer, started a home-based dress business on March 1, 2007. She was an employee and paid income taxes of $6,000 for 2006. Susan's business had net income of $0, $9,000, $11,000, and $15,000 respectively for each of the calendar quarters in 2007. Susan's total tax liability for the year was $5,500. Her first payment of estimated taxes is due:

a. April 15.
b. No estimates are due if Susan files by January 31, 2008.
c. June 15.
d. Susan's tax liability for 2006 exceeds 90% of her 2007 tax liability so no estimated payments are required to be paid.

10. If you have been notified by a payer that the TIN you gave is incorrect, you can usually prevent backup withholding from starting or stop backup withholding once it has begun by giving the payer your correct name and TIN. You must certify the TIN you give is correct. However, the payer may provide additional instructions if the TIN you gave needs to be validated by the Social Security Administration or by the IRS, if

a. The IRS notifies the payer twice within 3 calendar years that a TIN you gave fro the same account is incorrect.
b. The incorrect TIN is still being used on the account when the payer receives the second notice.
c. Both A and B above.
d. None of the above.

11. If your regular pay is not enough for your employer to withhold all the tax due on your pay plus your tips, you can give your employer money to cover the shortage.                    

True False

12. If your adjusted gross income is more than $150,000 ($75,000 if married filing separately return) to avoid an estimated tax penalty, your withholding and estimated tax payments must be at least

a. 90% of your tax liability for 2007.
b. 110% of the tax shown on your 2006 return (provided that your tax return cover all 12 months).
c. The smaller of A and B above.
d. Both A and B above.

13. The amount of income tax your employer withholds from your regular pay depends on

a. The amount you earn.
b. The information you give your employer.
c. Your marital status and age.
d. Both A and B above.

14. You must pay the tax as you earn or receive income during the year either through withholding from your job or estimated tax payments. The federal income tax is a

a. Pay-as-you-go tax.
b. Estimated tax.
c. Withholding tax.
d. Pay as you file tax.

15. After you have given your employer a Form W-4, you can check to see whether the amount of tax withheld from your pay is too little or too much. If too much or too little tax is being withheld, you should

a. give your employer a new Form W-4 to change your withholding.
b. expect your withholding and credits to be less than 90% of the tax to be shown on your 2008 tax return.
c. expect your withholding and credits to be less than 100% of the tax shown on your 2007 tax return that covers all 12 months.
d. any of the above.

16. Estimated tax payments are not required for 2008 if

a. You had no tax liability for 2007.
b. You were a U.S. citizen or resident for the whole year.
c. Your 2007 tax year covered a 12 month period.
d. all of the above.

17. If you claim exemption from withholding, your employer will not withhold federal income tax from your wages. You can claim exemption from withholding for 2008 only if

a. Form 2007 you have a right to a refund of all federal income tax withheld because you had not liability.
b. For 2008 you expect a refund of all federal income tax withheld because you expect to have no tax liability.
c. You are a student.
d. Both A and B above.

18. Your employer should give you a Form W-2 for 2006 by January 31, 2008. If you stopped working before the end of the year, your employer could have given you your Form W-2 at any time after you stopped working. Include the federal income tax withheld (as shown on Form W-2) on:

a. Line 64 Form 1040.
b. Line 39 Form 1040A.
c. Line 7 Form 1040EZ.
d. Any of the above.

19. If you do not give your employer a completed Form W-4, your employer 

a. must consider you exempt from federal income tax.
b. will have no choice but to ask you to leave the company.
c. must notify the IRS of your non-compliance.
d. must withhold at the highest rate, as if you were single and claimed no allowances.

20. The general rule exceptions apply for farmers and fishermen. If at least two-thirds of your gross income for 2007 or 2008 is from farming or fishing, your required annual estimated payment is

a. 90% of your total expected tax for 2008.
b. 66 2/3 % (.6667) of your total tax for 2008.
c. 100% of the total tax shown on your 2006 tax return that must cover all 12 months of the year.
d. is the smaller of B and C of the above.

21. Whether you are entitled to claim a certain number of allowances or complete exemption from withholding is subject to review by the IRS. Your employer may be required to send a copy of the Form W-4 to the IRS. If the IRS determines that you cannot claim more than a specified number of withholding allowances or claim a complete exemption from withholding, the IRS

a. cannot tell your employer how much to withhold from your wages.
b. will issue a notice of the maximum number of withholding allowances permitted to both you and your employer.
c. audit your return and issue an order barring you from working with that employer.
d. will tell your employer to withhold at the maximum rate possible.

22. You are a high school student and expect to earn $2,500 from a summer job. You do not expect to have any other income during the year, and your parents will be able to claim an exemption for you on their tax return. You worked last summer and had $375 federal income tax withheld from your pay. The entire $375 was refunded when you filed your 2007 return. With the facts above, you

a. can claim exemption from withholding.
b. have to have tax withheld at a single rate.
c. have to send a copy of Form W-4 to the IRS.
d. don't need to give a copy of Form W-4 to your employer.

23. For estimated tax purposes, the year is divided into four payment periods. If you do not pay by the due dates of each period, you may be charged a penalty even if you are due a refund when you file your return. If the due date for making an estimated tax payment falls on a Saturday, Sunday, or legal holiday, the payment will be

a. on time if you make it on the business day before the due date.
b. on time if you make it on the next business day.
c. not required because if the due date falls on a Saturday, Sunday, or legal holiday, the IRS will be closed.
d. postmarked for the next pay period.

24. Roberto and Conchita Valenzuela made joint estimated tax payments for 2007 totaling $4,000. They file separate 2007 Forms 1040. Roberto's tax is $4,500 and Conchita's is $1,200. They do not agree on how to divide the $4,000, therefore

a. Roberto's share $3,160; Conchita's $840.
b. Roberto's share $2,000; Conchita's $2,000.
c. Roberto reports all the estimated payments because he made more money.
d. None of the above.

25. If at least two-thirds of your gross income for 2007 or 2008 is from farming or fishing,

a. you have only one payment due date for your 2008 estimated tax - January 15, 2009.
b. The due dates for the first three payment periods do not apply to you.
c. if you file your 2007 Form 1040 by March 3, 2008, and pay all the tax you owe, you do not need to pay estimated tax.
d. all of the above.

26. Even if the total of credits is more than your tax for the year, if the total of your withholding and your estimated tax payments for any payment period is less than the amount you needed to pay by the due date for that period

a. you may be charged a penalty.
b. you may not get your refund.
c. you do not need to file as you don't owe any tax.
d. None of the above.

27. In figuring the penalty for underpayment of 2007 estimated tax, the annual rate is _____ for the number of days the underpayment remained unpaid from April 16, 2007 through September 30, 2007 and ____ from October 1, 2008 through April 15, 2008.

a. 15%; 28%.
b. 10%; 8%.
c. 8% ; 7%.
d. 3% ; 2%.

28. You will not be liable for the penalty for failure to pay estimated income tax if the total tax shown on your tax return minus the amount you paid through withholding is less than

a. $1,000.
b. $600.
c. $500.
d. $100.

29. Generally, you do not have to pay an underpayment penalty if

a. You total tax is less than $1,000.
b. You had no tax liability last year.
c. Either a or b is correct.
d. None of the above.

30. The tips you receive while working on your job are considered part of your pay. You must report to your employer the total amount of tips you receive on the job during the month. The report is due by the 10th day of the following month. You must report tips to your employer if you received tips 

a. only if you worked for more than one employer.
b. of $100 or more in a month.
c. of $40 or more in a month.
d. of $20 or more in a month.

31. Look at the Form 540 you prepared for Eleonor Gwen. What is the amount on Form 540, Line 62?

a. $ 4,684.
b. $ 4,744.
c. $ 500. 
d. None of the above.

32. Look at the Form 540 you prepared for Eleonor Gwen. What is the amount on Form 540, Line 64?

a. $ 468.
b. $ 474.
c. $ -0-. 
d. None of the above.

33. Generally, you do not have to complete Form FTB 5805. If you owe a penalty, the FTB figures the penalty for you and sends you a bill after you have filed your return. To avoid additional interest charges, you must pay the penalty within

a. 30 days of the billing.
b. 45 days of the billing.
c. 15 days of the billing.
d. 60 days of the billing.

34. You may request a waiver of the penalty if

a. You underpaid an estimated tax installment due to a casualty, disaster, or other unusual circumstances and it would be inequitable to impose a penalty.
b. Your accountant or tax preparer miscalculated the amount to be paid.
c. You were on vacation when the estimated payments were due. 
d. Any of the above.

35. If you file your 2007 tax return before February 1, 2008, and pay the entire balance due, you should also send in your last estimate payment.

True False

36. If you are a calendar year taxpayer, the fourth quarter estimate tax installment due date for 2007 is

a. December 31, 2007.
b. January 15, 2008.
c. September 17, 2007. 
d. April 16, 2007.

37. Use Form FTB 5805, Underpayment of Estimate Tax by Individuals and Fiduciaries, to

a. Figure if you owe a penalty for underpaying your estimate tax.
b. Figure if you have underpaid your estimate tax, and to figure the amount of penalty.
c. Have the FTB figure the penalty for you.
d. Both A and B above.

38. In most cases, the Franchise Tax board (FTB) can figure the penalty for you and you do not have to complete California Form 5805. You do not owe any penalty for underpayment of estimated tax if

a. The amount of your tax liability less credits but not including estimated tax payments for either 2006 or 2007 was less than $200 (or less than $100 if married/RDP filing a separate return.
b. You 2006 return was for a full 12 months (or would have been if you were required to file) and you did not have any tax liability on that return.
c. The amount of your withholding plus your estimated tax payments, if paid in the required installments, is at least 90% of the tax shown on your 2007 return or 100% of the tax shown on your 2006 return (110% if AGI was more than $150,000 or $75,000 if married/RDP filing a separate return) and you are not using the annualized income installment method.
d. All of the above.

39. Effective for taxable years beginning 2005, Alternative Minimum Tax (AMT) is included in the calculation of estimated tax.

True False

40. You may use the short method only if you are a calendar year taxpayer and

a. You made no estimated tax payments.
b. Your only payments were California income tax withheld.
c. You paid estimated tax in four equal amounts on the due dates. 
d. Any of the above.