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The Certified Payroll Professional Corner: Employment Taxes

Christopher Wood, CPP  

· 5 minute read

Christopher Wood, CPP  

· 5 minute read

This blog's question is on determining the deposit frequency for employers making employment tax deposits.

Summer is starting, so if you are planning to take the Certified Payroll Professional (CPP) exam during the Summer/Fall 2022 testing period, it would be a good idea to start working on those flashcards and find information for the seven main topics of the CPP test.

According to the American Payroll Association (APA) website, core payroll concepts make up 24% of the exam. This includes topics like worker status, the Fair Labor Standards Act (FLSA), and employment taxes, among others.

July 31, 2022 (August 1, 2022 since the 31st falls on a Sunday) is the due date for employers to report their second-quarter employment taxes (August 10, 2022 if all deposits and payments were made on time). So, this week, we’re going to discuss employment taxes and have a quiz question on this topic. But first, let’s go over last week’s quiz question.

Previous quiz question. Previously, we asked the CPP exam quiz question, how long does the IRS requires an employer to keep certain employment tax records (i.e., employer identification number (EIN), amounts and dates of all wages, dates of employment, and copies of income tax withholding certificates) on file?

The IRS and U.S. Department of Labor (DOL) have different time periods for how long to keep certain payroll information for recordkeeping purposes. For the IRS, employment tax records like the EIN and copies of tax returns filed should be kept for at least four years (specifically, the IRS says, “at least four years after filing the fourth quarter for the year”). This was option “c” from last week’s quiz. See Payroll Guide ¶4280 for more information on IRS recordkeeping requirements.

The DOL has a Fact Sheet on Fair Labor Standards Act (FLSA) recordkeeping requirements. Fact Sheet #21 says that each employer shall preserve for at least three years payroll records, collective bargaining agreements, and sales and purchase records. Records on which wage computations are based should be retained for two years. These include time cards and piece work tickets, wage rate tables, work and time schedules, and records of additions to or deductions from wages. See Payroll Guide ¶17,284 for more information on FLSA recordkeeping requirements.

This edition’s question. This CPP quiz question will be on employment taxes. So, what are employment taxes? Generally, they are federal income tax withholding (FITW) tax, Social Security tax (both the employer and employee portion), Medicare tax, Additional Medicare tax, and Federal Unemployment Tax Act (FUTA) tax. 26 CFR § 601.401 discusses employment taxes.

Form 941. Employers must deposit and report employment taxes. Typically, an employer reports FITW, Social Security, Medicare, and Additional Medicare taxes on Form 941 (Employer’s Quarterly Federal Tax Return).

Form 941 is filed on a quarterly basis and due by the last day of the month following the end of each quarter.  The due dates for filing this form are: April 30 (first quarter), July 31 (second quarter), October 31 (third quarter), and January 31 (for the fourth quarter). For smaller employers with a low employment tax liability, the IRS will allow for the annual deposit and filing of these taxes. Such employers use Form 944 (Employer’s Annual Federal Tax Return).

Employment tax deposits. While Form 941 is filed on a quarterly basis, employment tax deposits are typically submitted more frequently (unless the employer is a Form 944 filer). This frequency can either be on a semiweekly or monthly basis. There is also a next-day deposit requirement if an employer’s tax liability reaches a certain threshold during a deposit period.

So, how does an employer know if it is a semiweekly or monthly depositor? This is determined through a “lookback period.” This is the total tax liability for an employer for the previous four quarters (July 1 of the second preceding calendar year through June 30 of the preceding calendar year). If the employer’s tax liability for the lookback period is more than a certain threshold, the employer deposits on a semiweekly basis. If the employer’s tax liability is less than that threshold, the employer deposits on a monthly basis.

CPP exam question: What is the dollar threshold for determining if an employer makes employment tax deposits on a semiweekly or monthly basis?

  1. $25,000 or less for a monthly depositor; more than $25,000 for a semiweekly depositor.
  2. $50,000 or less for a monthly depositor; more than $50,000 for a semiweekly depositor.
  3. $25,000 or less for a monthly depositor; more than $50,000 for a semiweekly depositor.
  4. $75,000 or less for a monthly depositor; more than $75,000 for a semiweekly depositor.

Good luck! Find the answer to this question and more in the following CPP Corner Series blogs.

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