Florida Contractor Practice Exam

What is the "look back" period for determining the deposit schedule for taxes?

1. Last 1 quarter

2. Last 2 quarters

3. Last 3 quarters

4. Last 4 quarters

The correct answer is: Last 3 quarters

The "look back" period for determining the deposit schedule for taxes is three quarters. This means when assessing how often an employer must deposit federal employment taxes, the IRS requires a review of the total tax liability for the prior three calendar quarters. By evaluating this specific timeframe, employers can establish whether they fall under the monthly or semi-weekly deposit schedule based on their tax liabilities. This approach takes into account the variability and seasonality of payroll expenses over a broader range of time, enabling employers to adjust their deposit schedule according to their actual tax liabilities. The focus on three quarters provides a more accurate representation of an employer's payment patterns rather than limiting it to a shorter review period, which may not reflect their true obligations. The other options do not encompass the correct duration required for the look back period, as shorter periods like one or two quarters could misrepresent an employer's tax situation. A four-quarter look back is also not standard practice, as it extends beyond the prescribed approach, which could lead to unnecessary complexity or miscalculations in determining the deposit schedule. Thus, using a look back period of three quarters aligns with IRS guidelines, ensuring compliance and appropriate management of employment tax deposits.