Virginia NASCLA Practice Exam 2026 - Free NASCLA Practice Questions and Study Guide

The correct choice emphasizes the importance of handling withheld taxes with care. Taxes that an employer withholds from employees’ paychecks must be kept in a separate account to ensure they are properly set aside for payment to the IRS. This approach helps to prevent any potential misappropriation of those funds and ensures that the employer can meet their tax obligations when they are due.

Keeping the withheld taxes in a separate account also simplifies the accounting process and makes it easier to track the amount owed to the IRS. This practice aligns with responsible financial management and compliance with tax laws, safeguarding both the employer and employees against potential liabilities or penalties arising from mismanagement of these funds. It also serves to instill confidence among employees that their tax contributions are being handled appropriately.

In contrast, using withheld taxes for company expenses or holding them in the employer's general fund can lead to significant issues, including the inability to make timely payments to the IRS, which might result in fines or interest on unpaid tax liabilities. Investing the withheld funds is also inappropriate, as it risks delaying the payment to the IRS and may violate legal obligations.