Social security and Medicare taxes are collected under the SECA and the FICA. Here, we will explore which earnings are taxed under both systems and how to figure earnings from self-employment. We will also, if you have a household employee, you may need to pay state and federal employment taxes. The tax consultant needs to know whether the taxpayer has a household employees and whether the taxpayer needs to pay federal employment taxes. In addition, one must know how to figure, pay and report these taxes and records one must keep.
Tax School Homepage
Student Instructions:
Read the reading material and answer the questions on this page.
Submit the answers to: Assignment Online (the questions on this page).
Complete a short quiz: Short Quiz online. You have 25 minutes to complete 15 questions for this quiz. You must study the reading material. You won't have time to look up questions in the reading material. If you don't pass, you can retry - Every time you try the questions will be different.
So just to recap: for every topic you will submit an assignment (step 2) and a short quiz (step 3). Once these two items are submitted, a certificate will be issued to you.
You will need IRS Publication 517 and IRS Publication 926 to complete this topic.
1. Your earnings that are not from the exercise of your ministry may be subject to social security tax under FICA or SECA according to the rules that apply to taxpayers in general.
True False
2. Church employees, members of religious orders, and duly ordained, commissioned, or licensed ministers working as ministers or chaplains cannot participate in tax-sheltered annuity 403(b) Plans.
3. Social security and Medicare taxes are collected under the
A. Self-Employment Contributions Act (SECA). B. Federal Insurance Contributions Act (FICA). C. Medicare Contributions Act (MECA). D. Either A or B above.
4. The services you perform in the exercise of your ministry are covered by social security and Medicare under SECA. Your earnings for these services are subject to self-employment (SE) tax unless
A. You are a member of a religious order that has taken a vow of poverty. B. You ask the Internal Revenue Service (IRS) for an exemption from SE tax for your services and the IRS approves your request. C. You are subject only to the social security laws of a foreign country under the provisions of a social security agreement between he United States and that country. D. Any of the above.
5. Anyone licensed or commissioned as a minister must be able to perform substantially all the religious functions of an ordained minister to be treated as a minister for social security purposes.
6. Churches and qualified church-controlled organizations (church organizations) that are opposed to religious reasons to the payment of social security and Medicare taxes
A. Must still pay social security and Medicare tax (SECA). B. Can elect to exclude their employees from FICA coverage. C. Can take an election to exclude their employees from paying SE tax on those wages. D. Both B and C above.
7. You can request an exemption from SE tax if you
A. Are a minister or a Christian Science practitioner. B. Are a member of a religious order who has taken a vow of poverty. C. Elected to be covered under social security by filing Form 2031. D. Any of the above.
8. To claim the exemption form SE tax, the following is one of the conditions you must meet.
A. You file Form 4361. B. You are conscientiously opposed to public insurance because of your general conscience. C. You file for economic reasons. D. All of the above.
9. To request exemption from SE tax, file Form 4361 in triplicate with the IRS. File Form 4361 by the date your income tax return is due, including extensions, for the second tax year in which you have net earnings from self-employment of
A. At least $100. B. At least $600. C. At least $400. D. More than $5,000.
10. If you are member of a recognized religious sect, or a division of a recognized religious sect you can apply for an exemption from payment of social security benefits or payments based on your wages or self-employment income.
11. You have a household employee if you hired someone to do household work and that worker is your employee. The worker is your employee if
A. You can control the work that is done. B. You can control how the work is done. C. The work is full time, you pay the worker on an hourly, daily, or weekly basis, or by the job. D. Both A and B above.
12. You pay Helen Ayers to babysit your child and do light housework three days per week in your home. Helen follows your specific instructions in doing the house chores and babysitting duties. You provide all that is needed for her to perform her duties. Helen is
A. Not your household employee because her job is not really considered a job. B. Not your employee because you are not there at home to supervise her while she babysits. C. Your household employee because you control what work to do and how to do the work. D. Not your household worker because you don't control her work.
13. A worker who performs child care services for you in his or her home is your household employee.
14. If only the worker can control how the work is done, the worker is not your employee but is self-employed.
15. It is unlawful for you knowingly to hire or continue to employ an alien who cannot legally work in the United States. When you hire a household employee to work for you on a regular basis, you and the employee must complete the U.S. Citizenship and Immigration Services (USCIS) Form I-9, Employment Verification, no later than
A. The first day of work. B. The first week of work. C. The first pay check. D. The first month.
16. If you have a household employee, you may need to withhold and pay
A. Social Security taxes. B. Medicare taxes. C. Federal unemployment taxes. D. All of the above.
17. You figure Social Security and Medicare taxes on the Social Security and Medicare wages you pay your employee. Count wages you pay to ___________ as Social Security and Medicare wages.
A. Your spouse. B. Your child who is under the age of 21. C. Your parent who cares for your child and your child is under the age of 18 or has a physical or mental condition and you are divorced, a widow or your spouse is physically or mentally incapable of taking care of your children. D. None of the above.
18. When you hire a household employee you may need to
A. Find out if the person can legally work in the United States. B. Find out if you have to pay state taxes. C. Give your employee copies B, C, and 2 of Form W-2. D. Both A and B above.
19. When you pay your household employee you may need to
A. Withhold Social Security, Medicare and federal income taxes. B. Decide how you will make tax payments and keep records. C. Make advance payments of the earned income credit. D. Do all of the above.
20. A transit pass includes any pass, token, fare card, voucher, or similar item entitling a person to ride on a mass transit, such as a bus or train. If you provide your employee transit passes to commute to your home
A. Count the value of the transit passes as wages. B. Do not count the value of the transit passes as wages. C. Only count as wages up to $230 per month for 2009. D. None of the above.
21. Most services you perform as a minister, priest, rabbi, etc., are qualified services such as
A. Performing sacerdotal functions. B. Conducting religious workshops. C. Controlling, conducting, and maintaining religious organizations that are under the authority of a religious body that is a church or denomination. D. Any of the above.
22. Income from services that are not qualified services is generally subject to social security and Medicare tax withholding (not self-employment tax) under the rules that apply to employees in general. The following are qualified services.
A. Services you perform for nonreligious organizations. B. Services you perform as a duly ordained, commissioned, or licensed minister of a church as an employee of the United States, the District of Columbia, a foreign government, or any of their political subdivisions. C. The writing of religious books or articles for your ministry. D. Any of the above.
23. Include the following amount(s) in gross income when figuring your net earnings from self-employment as a minister, member of a religious order, Christian science practitioner, or church employee.
A. The rental value of a parsonage or a parsonage allowance provided to you. B. Contributions by your church to a tax-sheltered annuity plan set up for you, including any salary reduction contribution that are not included in your gross income. C. Pension payments or retirement allowances you receive for your past qualified services. D. None of the above.
24. When figuring your earnings from self-employment,
A. Deduct all your nonemployee ministerial expenses. B. Deduct all you allowances unreimbursed trade or business expenses that you incur in performing ministerial services as a common-law employee of the church. C. Include in the net amount of A and B above on Schedule SE (Form 1040) section A, line 2 or section B, line 2, with an attached explanation. D. All of the above.
25. Ordained, commissioned, or licensed ministers of the gospel may be able to exclude the rental allowance or fair market rental value of a parsonage that is provided to them as pay for their services. If you receive in your salary an amount officially designated as a rental allowance (including an amount to pay utility costs), you can exclude the allowance from your gross income if the amount is used to provide or rent a home and
A. The amount you exclude is only slightly more than the fair market rental value of the home, including furnishings and cost of utilities. B. The amount is not more than the reasonable pay for your services. C. The amount can be more than reasonable pay for your services as long as you are a full-time minister. D. Any of the above.
26. If you are a religious organization employee and you own your own home and you receive as part of your salary a housing or rental allowance, you may exclude from gross income
A. The amount actually used to provide a home. B. The amount officially designated as a rental allowance. C. The fair market value of the home, including furnishings, utilities, garage, etc. D. The smallest of A, B or C above.
27. Your earnings may be exempt form both income tax and SE tax if you are a member of a religious order who
A. Has taken a vow of poverty. B. Receives earnings for services performed as an agent of the order and in the exercise of duties required by the order. C. Renounces the earnings and gives them to the order. D. Any of the above.
28. If you have a bona fide commission and your congregation employs you on a full-time basis to perform substantially all the religious functions of the Jewish faith, you can exclude a rental allowance from your gross income.
29. If you are a self-employed minister, you may be able to deduct the amount you paid in 2009 for medical and dental insurance and qualified long-term care insurance for you, your spouse, and your dependents. The following is true regarding the self-employed health insurance deduction.
A. The deduction is allowed for months you are eligible to participate in a subsidized plan of your (or your spouse's) employer. B. The deduction can exceed your net earnings from the business under which the insurance plan in established. C. The expenses taken into account for purposes of this deduction are not allowed as a medical expense deduction on Schedule A. D. All of the above.
30. The earned income credit is a credit for certain people who work. Even if you do not owe tax, you can get a refund of the credit and you can also get part of the credit added to your wages or salary instead of waiting until after the end of the year. If you have earnings from qualified services that are exempt from SECA, the following amounts are NOT considered earned income.
A. Amounts you receive for nonemployee ministerial duties. B. Amounts you receive for performing ministerial duties as an employee. C. Any net earnings from self-employment, minus one-half of your SE tax if you had nonministerial duties. D. Any compensation received as an employee if you had nonministerial duties.
31. Even if you are a member of a religious order who has taken a vow of poverty and are required to turn over to the order amounts you earn, your earnings are subject to federal income tax withholding and employment (FICA) tax if you
A. Work for an organization outside your religious community. B. Perform work that is not required by, or done on behalf of, the order. C. Both A and B above. D. Are an employee of your religious organization.
32. If you are a member of a religious order who has taken a vow of poverty, you are exempt from paying SE tax on your earnings for qualified services you perform as an agent of your religious organization or its agencies. For tax purposes,
A. The earnings are tax free to you. B. Your earnings are considered the income of the religious order. C. The services you perform for your religious organizations or its agencies is not covered under social security. D. Both A and B above.
33. An approved exemption is effective for all tax years after 1967 in which you have $400 or more of net earnings from self-employment and any part of the earnings is for services as a member of the clergy. Once the exemption is approved, you have 3 years to revoke it.
34. Income you receive for performing qualified services is subject to SE tax unless you have an exemption. If you have an exemption, only the income you receive for performing qualified services is exempt. Services you perform as a member of a religious order in the exercise of duties required by the order are qualified services. If you are directed to work outside the order, the employment will not be considered a duty required by the order unless
A. Your services are the kind that are ordinarily performed by members of the order. B. Your services are part of the duties that must be exercised for, or on behalf of, the religious order as its agent. C. Both A and B above. D. None of the above.
35. To figure your net earnings from self-employment (on Schedule SE (Form 1040)), include in gross income
A. Salaries and fees for your qualified services. B. Offerings you receive for marriages, baptisms, funerals, masses, etc. C. The fair rental value of a parsonage provided to you (including utilities furnished) and the rental allowance (including utilities payment) paid to you. D. Any of the above.
36. If you are a member of the clergy, you must include in your income offerings and fees you receive for marriages, baptisms, funerals, masses, etc., in addition to your salary even if the offering is made to the religious institution.
37. If you receive a tax-free rental or parsonage allowance and have ministerial expenses, attach a statement to your tax return. The statement must include which of the following?
A. A list of each item of taxable ministerial income by source (such as wages, salary, weddings, baptisms, etc.) plus the amount. B. It must state how you figured the nondeductible part of your otherwise deductible expenses. C. A statement that the other deductions claimed on your tax return are not allowable to your tax-free income. D. All of the above.
38. Even if your income was less than the amount for filing requirement for most taxpayers, you must file an income tax return on Form 1040, and attach a completed Schedule SE (Form 1040), if you are not exempt from SE tax, and you have net earnings from self-employment of $400 or more in the tax year.
39. The federal income tax is a pay-as-you-go tax. Your salary generally is not subject to federal income tax withholding if
A. You are a duly ordained, commissioned or licensed minister, a member of a religious order, or a Christian Science practitioner. B. Your salary is for qualified services. C. Both A and B above. D. You are a duly ordained, commissioned, or licensed minister, a member of a religious order who has taken a vow of poverty.
40. You may be able to take a tax credit of up to $1,000 (up to $2,000 if filing jointly) for certain contributions you make to any of the retirement plans or IRAs. Figure the credit on Form 8880. You can take the credit if
A. You were born after January 1, 1992. B. Someone, such as your parent(s), claims an exemption for you on his or her 2009 tax return. C. You were a full-time student in 2009. D. None of the above.
41. If you prefer to pay your employee's Social Security and Medicare taxes from your own funds, do not withhold them from your employee's wages. The Social Security and Medicare taxes you pay to cover your employee's share must be included in the employee's wages for income tax purposes. These wages are counted as
A. Social security wages. B. Medicare wages. C. Federal unemployment (FUTA) wages. D. None of the above.
42. The federal unemployment tax is part of the federal and state program under the Federal Unemployment Tax Act (FUTA) that pays unemployment compensation to workers who lose their jobs.
43. You should withhold the employee's share of social security and Medicare taxes if you expect to pay your household employee cash wages in 2010 of
A. Any amount. B. $900 or more. C. $1,700 or more. D. $600 or more.
44. You can avoid owing tax with your return if you pay enough tax during the year to cover your household employment taxes, as well as your income tax. You can pay the additional tax by
A. Asking your employer to withhold more federal income tax from your wages in 2010. B. Making estimated tax payments for 2010 to the IRS or increase your payment if you already make estimated tax payments. C. Asking the payer of your pension or annuity to withhold more federal income tax from your benefits. D. Any of the above.
45. When you file your 2010 federal income tax return in 2011, make household employment tax payments by attaching
A. Schedule H (Form 1040) to your Form 1040. B. Schedule C (Form 1040) to your Form 1040. C. Schedule SE (Form 1040) to your Form 1040. D. All of the above.
46. Copy B of the 2010 Form W-2, Wage and Tax Statement, has a statement about the EIC on the back. If you give your employee that copy by January 31, 2011, you do not have to give the employee any other notice about the EIC. If you do not give your employee Copy B of the Form W-2, your notice about the EIC can be
A. A substitute Form W-2 with the same EIC information on the back. B. Notice 797, Possible Federal Tax Refund Due to the earned income credit (EIC). C. Your own written statement with the same wording as in Notice 797. D. Any of the above.
47. You must file certain forms to report your household employee's wages and the federal employment taxes for the employee if you pay
A. Social security and Medicare wages. B. FUTA wages. C. Wages from which you withhold federal income tax. D. Any of the above.
48. You must include your employer identification number (EIN) on the forms your file for your household employee. An EIN is a 9-digit number issued by the IRS. If you don't have this number, you can use your SSN.
49. If your household employee cares for your dependent who is under age 13 or for your spouse or dependent who is not capable of self-care, you may be able to take an income tax credit of up to 35% of your expenses.
50. If you pay a household employee cash wages of less than $1,700 in 2009, you do not have to report and pay social security and Medicare taxes on that employee's 2009 wages.
