Section 1: The Employer-employee Relationship
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Which of the following forms may be completed and submitted to the IRS to determine the employment status of an individual for federal income and employment tax purposes?
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Form SS-4
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Form SS-5
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Form SS-8
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Form W-9
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About This Quiz
This quiz in Section 1: The Employer-Employee Relationship explores critical aspects of tax and employment law, focusing on IRS forms and criteria distinguishing employees from independent contractors. It assesses understanding of statutory employment and the 'reasonable basis' test, essential for compliance and HR professionals.
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- 2.
Which of the following forms must be submitted to an independent contractor (who is paid at leat $600) after the end of the year for services performed during that year?
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Form W-2
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Form 1099-MISC
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Form 1096
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Form SS-8
Correct Answer
A. Form 1099-MISCExplanation
Form 1099-MISC must be submitted to an independent contractor (who is paid at least $600) after the end of the year for services performed during that year. This form is used to report income earned by independent contractors, freelancers, and other self-employed individuals. It provides information about the income received and is used by the contractor to report their income on their tax return. Form W-2 is used to report wages paid to employees, Form 1096 is used to summarize and transmit certain information returns to the IRS, and Form SS-8 is used to determine a worker's status as either an employee or an independent contractor.Rate this question:
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- 3.
All of the following types of evidence support an employer's treatment of a worker as an independent contractor under the "reasonable basis" test EXCEPT:
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Place of Work
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Court Decisions
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Private Letter Rulings
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Past IRS employment Tax Audits
Correct Answer
A. Place of WorkExplanation
The place of work does not support an employer's treatment of a worker as an independent contractor under the "reasonable basis" test. This is because the location where the work is performed is not a determining factor in classifying a worker as an independent contractor. The other options, such as court decisions, private letter rulings, and past IRS employment tax audits, can provide evidence that supports an employer's treatment of a worker as an independent contractor.Rate this question:
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- 4.
All of the following criteria would be typical of an independent contractor EXCEPT:
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Works off site
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Paid by the hour
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Furnishes own tools
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Sets own work hours
Correct Answer
A. Paid by the hourExplanation
An independent contractor is typically not paid by the hour, as they are usually paid based on the completion of a project or task. They have the freedom to set their own work hours, work off-site, and furnish their own tools, which are all characteristics of being an independent contractor. However, being paid by the hour is more commonly associated with an employee rather than an independent contractor.Rate this question:
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- 5.
Each of the following individuals would be classified as an employee EXCEPT:
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Controller of a company
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College professor
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Attorney (solo practitioner)
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City police officer
Correct Answer
A. Attorney (solo practitioner)Explanation
The correct answer is attorney (solo practitioner). This individual is not classified as an employee because they are self-employed and work independently as a solo practitioner. In contrast, the controller of a company, college professor, and city police officer are all typically considered employees as they work for an organization or institution and receive a salary or wages from that entity.Rate this question:
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- 6.
All of the following workers are statutory employees EXCEPT:
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Full-Time life insurance salespersons
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Qualified Real Estate Agents
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Homeworkers
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Traveling or City Salespersons
Correct Answer
A. Qualified Real Estate AgentsExplanation
Qualified Real Estate Agents are not considered statutory employees. Statutory employees are individuals who are treated as employees for tax purposes but still maintain some degree of independence. Full-Time life insurance salespersons, Homeworkers, and Traveling or City Salespersons are all examples of statutory employees. However, Qualified Real Estate Agents are typically treated as independent contractors rather than employees.Rate this question:
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- 7.
Full-Time life insurance salespersons paid solely by commission are exempt from:
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Social Security and Medicare Taxes
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Social Security Tax only
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FUTA tax
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Social Security, Medicare and FUTA taxes
Correct Answer
A. FUTA taxExplanation
Full-time life insurance salespersons paid solely by commission are exempt from FUTA tax because the Federal Unemployment Tax Act (FUTA) tax applies to employers, not employees. Since these salespersons are not considered employees, but rather independent contractors, they are not subject to FUTA tax. However, they are still responsible for paying Social Security and Medicare taxes on their commission income.Rate this question:
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- 8.
If an employer fails to withhold social security and Medicare taxes from a worker it misclassifies as an independent contractor and does not file a form W-2 or a Form 1099 for that worker, what penalty may the IRS impose?
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10% of the employees share of social security and Medicare taxes
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20% of the employees share of social security and Medicare taxes
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40% of the employees share of social security and Medicare taxes
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100% of the employees share of social security and Medicare taxes
Correct Answer
A. 40% of the employees share of social security and Medicare taxesExplanation
If an employer fails to withhold social security and Medicare taxes from a worker it misclassifies as an independent contractor and does not file a form W-2 or a Form 1099 for that worker, the IRS may impose a penalty of 40% of the employee's share of social security and Medicare taxes. This penalty is imposed to ensure that employers properly classify their workers and fulfill their tax obligations.Rate this question:
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- 9.
How long must an employer retain a Form I-9 for a terminated employee who worked for the employer for more than four years?
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1 year after termination
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3 years after termination
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7 years after termination
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Does not have to keep terminated employees' I-9 forms
Correct Answer
A. 1 year after terminationExplanation
An employer must retain a Form I-9 for a terminated employee who worked for the employer for more than four years for a period of 1 year after termination. This is in accordance with the regulations set by the U.S. Citizenship and Immigration Services (USCIS) which require employers to retain Form I-9 for a certain period of time after an employee's termination. The purpose of retaining the form is to ensure compliance with immigration laws and to have a record of the employee's eligibility to work in the United States during their employment.Rate this question:
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- 10.
Which of the following situations describes one of the general requirements that must be met for workers to be considered statutory employees?
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They have a continuing relationship with the employer
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They have a substantial investment in the business equipment
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They are licensed real estate agents
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Most of their compensation is related to sales
Correct Answer
A. They have a continuing relationship with the employerExplanation
Workers must have a continuing relationship with the employer in order to be considered statutory employees. This means that they have an ongoing and consistent employment arrangement with the employer, rather than working on a temporary or sporadic basis. This requirement helps to distinguish statutory employees from independent contractors who may work on a project-by-project basis. By having a continuing relationship, workers are more likely to be under the control and direction of the employer, which is a key factor in determining their employment status.Rate this question:
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- 11.
Each of the following goals is a reason why states might require employers to report newly hired employees EXCEPT:
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To detect welfare fraud
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To detect unemployment compensation fraud
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To locate individuals who have not claimed state lottery winnings
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To locate noncustodial parents subject to a child support withholding order
Correct Answer
A. To locate individuals who have not claimed state lottery winningsExplanation
States require employers to report newly hired employees for various reasons, such as detecting welfare fraud, detecting unemployment compensation fraud, and locating noncustodial parents subject to a child support withholding order. However, locating individuals who have not claimed state lottery winnings is not a goal for requiring employers to report newly hired employees. This is because state lottery winnings are typically claimed by the individual themselves, and it is not the responsibility of the employer to locate them.Rate this question:
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- 12.
Which of the following individuals are statutory non-employees?
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Homeworkers
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Full-time life insurance salespersons
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Newspaper deliverers
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Traveling salespersons
Correct Answer
A. Newspaper deliverersExplanation
Newspaper deliverers are considered statutory non-employees because they meet the criteria outlined by the IRS. They have a written contract stating that they will not be treated as employees for federal tax purposes, they are paid solely on sales or other output, they have the ability to hire and pay assistants, and they have a significant investment in the equipment used for their work. These factors distinguish them from employees and make them eligible for different tax treatment.Rate this question:
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- 13.
If the employer has the right to control what work will be done and how that work will be done, an employer-employee relationship exists
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True
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False
Correct Answer
A. TrueExplanation
If the employer has the authority to determine the tasks and methods of work for an individual, it indicates a level of control that is typically associated with an employer-employee relationship. In such a relationship, the employer has the power to direct and supervise the employee's work, which implies a hierarchical dynamic. Therefore, the statement "If the employer has the right to control what work will be done and how that work will be done, an employer-employee relationship exists" is true.Rate this question:
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- 14.
Full-time life insurance salespersons are always considered statutory employees and are never subject to FUTA tax
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True
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False
Correct Answer
A. FalseExplanation
Full-time life insurance salespersons are not always considered statutory employees. Whether or not they are classified as statutory employees depends on the specific circumstances and criteria set by the Internal Revenue Service (IRS). Therefore, it is possible for full-time life insurance salespersons to be subject to FUTA tax if they do not meet the requirements to be classified as statutory employees.Rate this question:
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- 15.
Workers hired through a temporary help agency are not employees of the client company
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True
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False
Correct Answer
A. TrueExplanation
Workers hired through a temporary help agency are not considered employees of the client company because they are technically employed by the agency itself. The client company may have control over the tasks and supervision of these workers, but the legal responsibility for their employment lies with the agency. This arrangement allows the client company to have flexibility in managing their workforce and reduces certain legal obligations and liabilities typically associated with being an employer.Rate this question:
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- 16.
Telemarketers working under the direction of a company are usually independent contractors
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True
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False
Correct Answer
A. FalseExplanation
Telemarketers working under the direction of a company are usually not independent contractors. They are typically considered employees of the company, as they work under the company's direction and are subject to its control and supervision. Independent contractors, on the other hand, have more autonomy and control over their work and are not typically supervised or directed by a company. Therefore, the statement is false.Rate this question:
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- 17.
An accountant who provides bookkeeping and payroll services to several local businesses and works at her own office is an independent contractor
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True
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False
Correct Answer
A. TrueExplanation
The given statement is true because an independent contractor is a self-employed individual who provides services to multiple clients. In this scenario, the accountant is working at her own office and providing bookkeeping and payroll services to several local businesses, which indicates that she is not an employee of any specific company but rather an independent contractor.Rate this question:
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- 18.
The responsibility for determining the employment status of an individual who performs services rests with the employer
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True
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False
Correct Answer
A. TrueExplanation
The statement is true because it is the responsibility of the employer to determine the employment status of an individual who performs services. This includes determining whether the individual is an employee or an independent contractor. The employer must consider various factors such as the level of control over the individual's work, the method of payment, and the presence of a contract. Making this determination is important for ensuring compliance with labor laws and regulations, as well as for determining the individual's rights and benefits in the workplace.Rate this question:
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- 19.
If an independent contractor timely provides the employer with a correct Taxpayer Identification Number, there will be no backup withholding.
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True
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False
Correct Answer
A. TrueExplanation
If an independent contractor provides the employer with a correct Taxpayer Identification Number (TIN) within the specified time frame, there will be no backup withholding. Backup withholding is a requirement by the IRS to withhold a certain percentage of payments made to a contractor in case they fail to provide a valid TIN. However, if the contractor provides a correct TIN on time, there is no need for backup withholding. Therefore, the statement is true.Rate this question:
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- 20.
If an employer uses the E-verify program, a new hire does not have to enter their SSN in section 1 of Form I-9
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True
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False
Correct Answer
A. FalseExplanation
If an employer uses the E-verify program, a new hire still has to enter their SSN in section 1 of Form I-9. The E-verify program is an internet-based system that allows employers to verify the eligibility of their employees to work in the United States. While the program helps employers confirm the validity of employees' information, it does not exempt them from the requirement of entering their SSN in section 1 of Form I-9. Therefore, the statement is false.Rate this question:
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- 21.
Managers and executives are excluded from the employer-employee relationship for tax purposes
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True
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False
Correct Answer
A. FalseExplanation
Managers and executives are not excluded from the employer-employee relationship for tax purposes. They are still considered employees and are subject to the same tax regulations as other employees. This means that they are required to pay income tax, social security tax, and other applicable taxes based on their earnings. Therefore, the statement that managers and executives are excluded from the employer-employee relationship for tax purposes is false.Rate this question:
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- 22.
Length of employment makes no difference in determining employment status
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True
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False
Correct Answer
A. TrueExplanation
The statement is true because the length of employment does not affect an individual's employment status. Employment status is determined by factors such as the nature of the work, the level of control exerted by the employer, and the contractual agreement between the employer and the employee. The length of employment may be relevant for other considerations, such as eligibility for certain benefits or protections, but it does not directly impact employment status.Rate this question:
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- 23.
Technical services specialist are specifically excluded from the "reasonable basis" test
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True
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False
Correct Answer
A. TrueExplanation
Technical services specialists are excluded from the "reasonable basis" test. This means that they do not need to meet the same level of knowledge and expertise as other professionals when providing their services. This exclusion recognizes that technical services specialists may have specialized skills or knowledge that may not be easily measured or evaluated using traditional standards. Therefore, the statement is true.Rate this question:
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- 24.
Under the ABC test, one of the determining factors is whether the worker in question is free from control or direction in performing the work both by an agreement and in reality
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True
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False
Correct Answer
A. TrueExplanation
Under the ABC test, one of the determining factors is whether the worker in question is free from control or direction in performing the work both by an agreement and in reality. This means that the worker must have the freedom to perform their work without being micromanaged or directed by the employer. The worker should have the ability to make their own decisions and have control over how they complete their tasks. This factor is important in determining whether a worker is classified as an independent contractor or an employee. Therefore, the given answer "True" is correct.Rate this question:
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- 25.
Part-Time employees are not covered under the federal payroll tax laws even if they meet the common law test for employment status
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True
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False
Correct Answer
A. FalseExplanation
Part-time employees are indeed covered under federal payroll tax laws, regardless of whether they meet the common law test for employment status. The federal payroll tax laws apply to all employees, regardless of their employment status or the number of hours they work. Therefore, the statement that part-time employees are not covered under federal payroll tax laws is incorrect.Rate this question:
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- 26.
"Reciprocity agreements" require employers to withhold state income tax only for their employees' states of residence
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True
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False
Correct Answer
A. TrueExplanation
Reciprocity agreements refer to agreements between states that allow employees who work in a state but live in another to pay income tax only in their state of residence. Therefore, employers are only required to withhold state income tax for their employees' states of residence under these agreements. This means that the statement is true.Rate this question:
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- 27.
Employers can demand specific documents to prove an employee's eligibility to work in the U.S
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True
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False
Correct Answer
A. FalseExplanation
Employers cannot demand specific documents to prove an employee's eligibility to work in the U.S. The Immigration Reform and Control Act (IRCA) prohibits employers from requesting specific documents from employees during the hiring process. Instead, employers are required to accept any document from the employee's List of Acceptable Documents that establishes both their identity and work authorization. This allows employees to choose which documents to present, as long as they are on the list provided by the U.S. Citizenship and Immigration Services (USCIS).Rate this question:
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- 28.
Employers who claim Section 530 status for their workers because a significant segment of their industry classifies similar workers the same way must show that at least 50% of the industry treats these workers as independent contractors
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True
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False
Correct Answer
A. FalseExplanation
To claim Section 530 status for their workers, employers must show that at least 50% of the industry treats these workers as independent contractors. Therefore, the correct answer is false because employers need to demonstrate that a significant segment of the industry classifies similar workers as independent contractors, not just 50% of the industry.Rate this question:
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- 29.
An employer that changes its classification of a worker from an independent contractor to employee may still claim Section 530 protection for the period before the change in treatment
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True
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False
Correct Answer
A. TrueExplanation
An employer that changes its classification of a worker from an independent contractor to an employee may still claim Section 530 protection for the period before the change in treatment. This means that even if the employer reclassifies the worker, they can still be protected under Section 530, which provides certain relief from employment tax obligations. This allows the employer to avoid penalties and back taxes for misclassifying the worker as an independent contractor in the past.Rate this question:
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- 30.
An IRS agent conducting an employment tax audit must give the employer written notice of the availability of the Section 530 protections
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True
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False
Correct Answer
A. TrueExplanation
In an employment tax audit, it is true that an IRS agent must provide the employer with written notice of the availability of the Section 530 protections. Section 530 of the Revenue Act provides certain protections to employers who have misclassified workers as independent contractors instead of employees. By providing written notice, the IRS ensures that the employer is aware of their rights and options under Section 530 during the audit process.Rate this question:
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- 31.
Under the federal new hire reporting requirements, multi-state employers must report a new hire to the state in which the employee works
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True
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False
Correct Answer
A. FalseExplanation
Multi-state employers must report a new hire to the state in which the employee works. This statement is false. Under the federal new hire reporting requirements, multi-state employers are actually required to report a new hire to the state in which the employee resides, not where they work. This is important because it helps states enforce child support orders and prevent fraudulent claims for public assistance.Rate this question:
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- 32.
If an employee resigns after working for an employer for five years, the employer must retain the employee's Form I-9 for three years after the employee's last day of employment
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True
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False
Correct Answer
A. FalseExplanation
The statement is false. According to the U.S. Citizenship and Immigration Services (USCIS), employers are required to retain an employee's Form I-9 for either three years after the date of hire or one year after the employee's termination, whichever is later. Therefore, if an employee resigns after working for an employer for five years, the employer must retain the employee's Form I-9 for either three years after the date of hire or one year after the employee's resignation, whichever is later.Rate this question:
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Mar 05, 2024Quiz Edited by
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Jan 25, 2011Quiz Created by
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