22 Worker Status & New-Hire Forms Practice Questions & Answers

1. 1. A company reclassifies a worker it had been paying as an independent contractor and begins treating her as an employee. Which set of obligations does the employer now have for her pay?

   • A.Withhold federal income tax only, pay no employer taxes, and report the pay on Form 1099-NEC.
   • B.Withhold nothing, pay employer FICA and FUTA on her pay, and issue both Form W-2 and Form 1099-NEC.
   • C.Withhold federal income tax and employee FICA, pay employer FICA and FUTA, and issue Form W-2.✓ Answer
   • D.Withhold the employee FICA share only, pay FUTA, and report the pay on Form 1099-NEC.

   Employee status moves the tax burden onto the employer: it must withhold federal income tax and the employee share of social security and Medicare, match that FICA with its own share, pay FUTA, and report the wages on Form W-2. An independent contractor receives Form 1099-NEC, has nothing withheld, and pays self-employment tax personally, so no employer payroll tax arises.

   Source: IRS Publication 15-A, Employer's Supplemental Tax Guide — Employee or Independent ContractorReport a problem with this question

2. 2. Under the IRS common law framework described in Publication 15-A, how is the evidence of control and independence organized?

   • A.Twenty numbered factors covering instructions, training, payment method and similar points.
   • B.Three categories: economic dependence, permanency of work, and the worker's skill level.
   • C.Three categories: behavioral control, financial control, and the type of relationship.✓ Answer
   • D.Two categories: the employer's right to control and the worker's investment in tools.

   The IRS now groups the evidence into three categories — behavioral control, financial control, and the type of relationship — and no single item within them is decisive. The older twenty-factor list was folded into these three categories, and the governing question is whether the business has the right to direct how the work is done, not whether it actually exercises that right.

   Source: IRS Publication 15-A, Employer's Supplemental Tax Guide — Common Law RulesReport a problem with this question

3. 3. A firm and a worker disagree about whether he is an employee. Which form asks the IRS to determine his status for federal employment tax purposes, and who may file it?

   • A.Form SS-5; either party may file it, and the IRS answers within thirty days.
   • B.Form SS-8; either the firm or the worker may file it, and the IRS issues a determination.✓ Answer
   • C.Form SS-4; only the firm may file it, and it must be filed before the worker starts.
   • D.Form W-9; only the worker may file it, and it binds the firm for three tax years.

   Form SS-8 requests an official IRS determination of worker status for employment tax and income tax withholding purposes, and either the business or the worker may submit it. The look-alike forms serve unrelated purposes: Form SS-4 applies for an employer identification number, Form SS-5 applies for a Social Security card, and Form W-9 collects a payee's certified taxpayer identification number.

   Source: IRS Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding — instructionsReport a problem with this question

4. 4. Before issuing the first payment to a newly engaged independent contractor, which document should the payer obtain from him, and why?

   • A.Form W-9, so the payer has the contractor's certified name and taxpayer identification number.✓ Answer
   • B.Form W-4, so the payer can apply federal income tax withholding to the payments he receives.
   • C.Form SS-8, so the payer has written proof that the contractor is not an employee.
   • D.Form I-9, so the payer can verify that the contractor is authorized to work in the country.

   Form W-9 is the payee's certification of name and taxpayer identification number, and the payer keeps it rather than filing it with the IRS. Collecting it before payment protects the payer, because a missing or obviously incorrect TIN forces the payer to apply backup withholding to the payments and still report them on Form 1099-NEC.

   Source: IRS Form W-9 instructions; IRS Publication 15-A, Employer's Supplemental Tax GuideReport a problem with this question

5. 5. A payer must apply backup withholding to a contractor's payments because the contractor never furnished a taxpayer identification number. On which return are the withheld amounts reported?

   • A.Form 945, the annual return of federal income tax withheld from nonpayroll payments.✓ Answer
   • B.Form 940, because backup withholding is reported with the employer's unemployment tax.
   • C.Form 944, filed once a year by employers with small employment tax liabilities.
   • D.Form 941, with the amounts included in federal income tax withheld from wages.

   Backup withholding is income tax withheld from nonpayroll payments, so it is reported annually on Form 945 and never mixed into the quarterly wage return. Amounts withheld are also shown as federal income tax withheld on the payee's information return, and deposits follow the nonpayroll deposit schedule kept separately from wage withholding.

   Source: IRS Publication 15 (Circular E), Backup Withholding; IRS Form 945 instructionsReport a problem with this question

6. 6. An employer that treated a group of workers as contractors is audited. What must it show to qualify for Section 530 relief from federal employment tax liability?

   • A.A ruling from the Department of Labor, a prior state audit, and payment of the disputed employer FICA.
   • B.A signed contract with each worker, proof the workers preferred that status, and a written legal opinion.
   • C.A reasonable basis for the treatment, consistent treatment of similar workers, and all required Forms 1099 filed.✓ Answer
   • D.An IRS determination on Form SS-8, a corrected Form W-2 for each worker, and payment of the reduced Section 3509 amounts.

   Section 530 is a safe harbor with three independent requirements: a reasonable basis such as judicial precedent, a prior employment tax audit that did not reclassify similar workers, or a long-standing industry practice; substantive consistency, meaning no worker in a substantially similar position was treated as an employee; and reporting consistency, meaning every required information return was actually filed on a contractor basis. Meeting them relieves the employer of the tax liability without deciding that the workers really are contractors.

   Source: Section 530 of the Revenue Act of 1978Report a problem with this question

7. 7. An employer's unintentional misclassification is corrected on audit, and the employer had filed the required Forms 1099. Under Internal Revenue Code Section 3509, how is the employee's share of the taxes assessed?

   • A.Twenty percent of the income tax and one and a half percent of employee FICA.
   • B.The full amount of income tax and employee FICA that should have been withheld.
   • C.One and a half percent of wages for income tax and twenty percent of the employee FICA share.✓ Answer
   • D.Three percent of wages for income tax and forty percent of the employee FICA share.

   Section 3509 substitutes reduced assessment rates when the misclassification was unintentional: one and a half percent of the wages for the income tax that should have been withheld and twenty percent of the employee share of FICA. Those rates double to three percent and forty percent if the required information returns were not filed, and the employer's own share of FICA is always owed in full and is never reduced.

   Source: Internal Revenue Code Section 3509Report a problem with this question

8. 8. A full-time life insurance salesperson meets the conditions to be a statutory employee. How does the company handle withholding and year-end reporting for her commissions?

   • A.Withhold no taxes at all and report the commissions on Form 1099-NEC as nonemployee pay.
   • B.Withhold social security and Medicare but not federal income tax, and report on Form W-2.✓ Answer
   • C.Withhold federal income tax, but not social security or Medicare, and report it all on Form W-2.
   • D.Withhold federal income tax, social security and Medicare, and report on Form W-2.

   A statutory employee is an employee for social security and Medicare purposes but not for income tax withholding, so FICA is withheld and federal income tax is not. The pay is reported on Form W-2 with the statutory employee indicator marked, which lets the worker report the income and related business expenses on a business schedule rather than as an ordinary employee.

   Source: IRS Publication 15-A, Employer's Supplemental Tax Guide — Statutory EmployeesReport a problem with this question

9. 9. Which statutory employees are also subject to federal unemployment tax on their pay?

   • A.None of them; statutory employees are never subject to FUTA.
   • B.Only agent or commission drivers and traveling or city salespeople.✓ Answer
   • C.Only full-time life insurance salespeople and home workers.
   • D.All four statutory employee categories are subject to FUTA on identical terms.

   All four statutory employee categories are covered for social security and Medicare, but federal unemployment tax reaches only agent or commission drivers and traveling or city salespeople. Full-time life insurance salespeople and home workers are outside FUTA coverage, which is why a payroll department must track the category and not just the statutory employee label.

   Source: IRS Publication 15-A, Employer's Supplemental Tax Guide — Statutory EmployeesReport a problem with this question

10. 10. A payroll manager reclassifies an employee from nonexempt to exempt under the Fair Labor Standards Act white collar rules. What does that reclassification change?

    • A.The employee is now paid on Form 1099-NEC and no longer receives a Form W-2.
    • B.The employer stops paying FUTA on this employee and no longer tracks hours of any kind.
    • C.Overtime pay is no longer required, but wage withholding and reporting are unchanged.✓ Answer
    • D.The employee stops being covered by FICA withholding but keeps overtime pay rights.

    Exempt versus nonexempt is a wage and hour question, not a tax question: an exempt employee simply loses the entitlement to minimum wage and to overtime at one and one-half times the regular rate for hours over forty in a workweek. The employee remains an employee for tax purposes, so income tax and FICA withholding, employer FICA and FUTA, and Form W-2 reporting all continue exactly as before.

    Source: Fair Labor Standards Act, 29 U.S.C. 213; 29 CFR Part 541Report a problem with this question

11. 11. A worker is properly treated as an independent contractor under the IRS common law test. What does that conclusion mean for his rights under the Fair Labor Standards Act?

    • A.The FLSA analysis is identical but is applied only to workers paid by the hour.
    • B.The Department of Labor must accept the IRS conclusion unless it separately audits the employer.
    • C.Nothing further is needed; an IRS contractor is a contractor for wage and hour law too.
    • D.The FLSA applies its own economic reality analysis, which can reach a different result.✓ Answer

    The two agencies use different tests: the IRS asks about the right to control the work, while the FLSA rests on the broader suffer or permit to work standard, examined through economic reality themes such as control, opportunity for profit or loss, investment, permanence, skill and how integral the work is. Because the standards differ, the same worker can be a contractor for federal tax purposes and still be an employee entitled to minimum wage and overtime.

    Source: Fair Labor Standards Act, 29 U.S.C. 203; IRS Publication 15-A, Employer's Supplemental Tax GuideReport a problem with this question

12. 12. A manufacturer takes on assembly workers through a temporary staffing agency that recruits them, pays them and can reassign them elsewhere. Who is normally responsible for withholding and for issuing the Form W-2?

    • A.Both parties, each issuing a Form W-2 for the share of wages it paid.
    • B.The staffing agency, as the common law employer that hires, pays and assigns them.✓ Answer
    • C.The manufacturer, because it directs the daily work at its own facility.
    • D.Neither party; the workers are contractors who receive a Form 1099-NEC.

    In a normal temporary staffing arrangement the agency hires, pays, disciplines and reassigns the workers, so it is the common law employer that withholds, deposits employment taxes and issues Form W-2. The client's on-site supervision does not shift those tax duties, although it can still make the client a joint employer for minimum wage and overtime purposes under wage and hour law.

    Source: IRS Publication 15-A, Employer's Supplemental Tax Guide; IRS Publication 15 (Circular E)Report a problem with this question

13. 13. A client company signs an agreement with a certified professional employer organization that pays its worksite employees. For federal employment tax purposes, what is the effect of the certification?

    • A.The IRS treats the worksite employees as independent contractors of the CPEO.
    • B.Both parties are always jointly liable, exactly as with any uncertified PEO.
    • C.The client remains solely liable, and the CPEO is only a payroll vendor.
    • D.The CPEO may be treated as the sole employer for the wages that it pays.✓ Answer

    Certification is what distinguishes a CPEO from an ordinary professional employer organization: the certified entity may be treated as the sole employer for federal employment taxes on the wages it pays to worksite employees. With an uncertified arrangement the client normally remains liable as the common law employer, which is the general rule that outsourcing payroll does not outsource the tax liability.

    Source: Internal Revenue Code Section 7705, Certified Professional Employer OrganizationsReport a problem with this question

14. 14. An employer authorizes a third party on Form 2678 to pay wages and deposit employment taxes as its agent. What is the liability effect of that appointment?

    • A.The employer alone remains liable, since Form 2678 is only a mailing authorization.
    • B.The agent alone becomes liable and the employer is fully released from the taxes.
    • C.Liability shifts to the agent for deposits, but stays with the employer for returns.
    • D.The agent and the employer are jointly liable for the employment taxes involved.✓ Answer

    An agent appointed under Section 3504 on Form 2678 becomes liable for the employment taxes together with the employer, so both remain on the hook if deposits or returns are wrong. That contrasts with a reporting agent authorized on Form 8655, which signs and files on the employer's behalf while the employer alone keeps the liability.

    Source: Internal Revenue Code Section 3504; IRS Form 2678 instructionsReport a problem with this question

15. 15. Two related restaurants share an employee who works 25 hours at one and 20 hours at the other in the same workweek, and they are joint employers under the Fair Labor Standards Act. How must the hours be treated?

    • A.The hours are combined, and five hours must be paid at the overtime rate.✓ Answer
    • B.Overtime is optional if the employee agreed in writing to work at both locations.
    • C.Each location pays its own hours at straight time, since neither exceeds forty.
    • D.Only the location where the employee worked more hours owes those five overtime hours.

    When two entities are joint employers of the same worker in the same workweek, all hours worked for both are added together for overtime purposes, giving 45 hours and 5 hours of overtime at one and one-half times the regular rate. Both employers are jointly and severally responsible for the resulting minimum wage and overtime obligation, so an agreement between them or with the employee cannot waive it.

    Source: Fair Labor Standards Act, 29 U.S.C. 207; 29 CFR Part 791Report a problem with this question

16. 16. A new employee is added to the payroll but never returns a Form W-4 before the first payday. How must the employer withhold federal income tax from that first paycheck?

    • A.As though the employee had checked single and made no other entries on the form.✓ Answer
    • B.At the flat supplemental wage rate until the employee turns in the form.
    • C.At the married filing jointly rate, the neutral default under the rules.
    • D.No federal income tax may be withheld until the signed form arrives.

    When no valid withholding certificate is furnished, the employer must still withhold, treating the employee as single or married filing separately with no dependents, no other income, no deductions and no extra withholding. Paying with zero withholding is not an option, and the old shorthand about single with zero allowances no longer describes the rule because the current form does not use allowances at all.

    Source: IRS Publication 15 (Circular E), Withholding When No Form W-4 Is FurnishedReport a problem with this question

17. 17. An employee claimed exemption from federal income tax withholding for last year and has not filed a new certificate. What must payroll do?

    • A.Begin withholding after February 15 using the last valid nonexempt form.✓ Answer
    • B.Suspend the employee's pay until a current withholding certificate is received.
    • C.Keep the exempt status in force until the employee chooses to file a new form.
    • D.Withhold at a flat penalty rate for the remainder of the calendar year.

    A claim of exemption from withholding is good for one calendar year only and expires on February 15 of the following year. If no new exempt certificate arrives, the employer resumes withholding using the most recent valid certificate that did not claim exemption, or treats the employee as single with no other entries if no such certificate is on file.

    Source: IRS Publication 15 (Circular E), Exemption From Withholding; IRS Form W-4 instructionsReport a problem with this question

18. 18. An employee hands in a Form W-4 with the signature line blank and a note saying the entries are only rough estimates. How should payroll respond?

    • A.Use the unsigned form anyway, because the employee's intent is clear.
    • B.Treat the employee as exempt from withholding until a signed form arrives.
    • C.Reject it, request a valid form, and withhold on the last valid one.✓ Answer
    • D.Forward the form to the IRS and follow whatever instructions come back.

    A withholding certificate is invalid if it is unsigned, altered, or accompanied by a statement that the information is untrue or unreliable, and an employer may never withhold on the basis of an invalid certificate. The employer asks for a corrected one and, until it arrives, withholds using the last valid certificate on file, or as single with no other entries if there is none.

    Source: IRS Publication 15 (Circular E), Invalid Forms W-4Report a problem with this question

19. 19. A department manager asks payroll to email him the pay rate, Social Security number and garnishment history of an employee he supervises. What is the payroll professional's proper response?

    • A.Send the file, since a direct supervisor is entitled to all of an employee's records.
    • B.Provide only the information the manager needs for a legitimate business purpose.✓ Answer
    • C.Refuse everything, because payroll data may never leave the payroll department.
    • D.Send it only if the manager copies the employee on the same message.

    Payroll records contain sensitive personal data, and the professional standard is to release them only to those with a legitimate business need and only to the extent of that need. Supervisory status alone does not create a right to identifiers such as a Social Security number or to garnishment details, and unnecessary disclosure exposes both the employee and the employer to identity theft and legal risk.

    Source: IRS Publication 15 (Circular E), employer recordkeeping and safeguarding of employee information; Disposal Rule, 16 CFR Part 682Report a problem with this question

20. 20. A new employee's first day of work for pay is Monday. Under the employment eligibility verification rules, when must each part of the Form I-9 be completed?

    • A.Both parts must be completed before the job offer is accepted by the employee.
    • B.The employee signs by the first day and the employer within three business days.✓ Answer
    • C.The employee signs within three business days and the employer within seven days.
    • D.Both parts are due within twenty calendar days after the date of hire.

    The employee's portion must be completed and signed no later than the first day of employment, and the employer must examine the documents and complete its portion within three business days after that first day. If the job will last fewer than three business days, the employer's portion must be finished by the first day, and the employee alone chooses which acceptable documents to present.

    Source: Immigration Reform and Control Act of 1986; USCIS Form I-9 instructions and Handbook for Employers M-274Report a problem with this question

21. 21. How long must an employer retain a former employee's Form I-9 after the employment relationship ends?

    • A.Three years after the date the employment relationship ended, in all cases.
    • B.One year after termination or three years after hire, whichever is earlier.
    • C.The later of three years after the date of hire or one year after termination.✓ Answer
    • D.Four years after the date on which the employee's wages were last paid.

    The retention period for the Form I-9 is the later of three years after the date of hire or one year after employment ends, so the employer computes both dates and keeps the form until the further one passes. This differs from the four-year rule for employment tax records, which is why many employers store completed forms separately from personnel files for inspection.

    Source: Immigration Reform and Control Act of 1986; USCIS Form I-9 instructions and Handbook for Employers M-274Report a problem with this question

22. 22. Federal law requires employers to report newly hired and rehired employees to a state directory of new hires. Which statement describes that obligation correctly?

    • A.Only employees expected to work more than one year must be reported at all.
    • B.The report is due within twenty days, and no state may require it any sooner.
    • C.The report is due within twenty days of hire, and a state may set a shorter deadline.✓ Answer
    • D.The report goes to the IRS, which forwards the data to the states each quarter.

    Federal law sets twenty calendar days from the date of hire as the outer limit for reporting a new or rehired employee, and states are free to impose shorter deadlines, so payroll must follow the rule of the state where the employee works. The report identifies the employee by name, address and Social Security number along with the employer's name, address and identification number, and it supports child support enforcement and detection of benefit fraud.

    Source: Personal Responsibility and Work Opportunity Reconciliation Act of 1996, 42 U.S.C. 653aReport a problem with this question

Practice questions based on the PayrollOrg Fundamental Payroll Certification content outline and on federal payroll authorities including IRS Publication 15 (Circular E), Publication 15-A, Publication 15-B, the Fair Labor Standards Act, and the Consumer Credit Protection Act. FPC and CPP are marks of PayrollOrg; this site is not affiliated with or endorsed by PayrollOrg. Amounts that are adjusted each year — wage bases, contribution limits, the minimum wage, mileage and per-diem rates — are given inside the question rather than tested from memory, and state-specific rules are out of scope. Confirm the current content outline and the current-year figures from the official sources before testing. About the FPC exam →