FPC-Remote Fundamental Payroll Certification Questions and Answers

Workers’ compensation benefits are tax-exempt if they are paid for work-related injuries or illnesses.

If payments are received for non-work-related illnesses (B), they become taxable.

Amounts that do not exceed federal or state limits (C & D) remain tax-exempt.

References:

IRS Publication 525 (Taxable and Nontaxable Income)

Employee badges (B) are NOT acceptable as proof of identity for Form I-9.

Acceptable IDs include passports, driver’s licenses, and other government-issued documents.

References:

USCIS Form I-9 Acceptable Documents List

Employee data changes in a self-service portal (A) are normal activitiesunless unauthorized.

Payroll activity outside normal work hours (B), excessive file access (C), and unexplained account locks (D) may indicate security breaches.

References:

Payroll System Security Standards (Payroll.org)

IRS Data Security Guidelines

Allocated tips are NOT subject to withholding unless reported by the employee.

If not reported, FIT, Social Security, and Medicare (D) are not withheld but are still taxable.

References:

IRS Publication 531 (Reporting Tip Income)

Payroll taxes owed by the employer (such as FICA and FUTA) are recorded as a current liabilitybecause they must be paid within a short period.

Long-term liability (C) applies to debts due over time, not payroll taxes.

Expense accounts (D) track costs but do not reflect unpaid obligations.

References:

Payroll Accounting Guidelines (Payroll.org)

IRS Employer Tax Guide (Publication 15)

Comprehensive and Detailed Explanation:Payroll liabilities (taxes, deductions, and withholdings) must be reconciledregularly to prevent errors and ensure compliance.

Best practice is monthly reconciliation (Option B)to ensure:

Payroll taxes matchgeneral ledger accounts.

Deposits are made on time toavoid IRS penalties.

Payroll liability accounts are balanced beforequarterly tax filings.

Option A (Weekly)is impractical unless payroll runs very frequently.

Option C (Quarterly) and Option D (Yearly) are too infrequentand may result in tax errors or compliance issues.

Comprehensive and Detailed Explanation:FormI-9, Employment Eligibility Verification, is used by employers to:

Verify the identity of newly hired employees

Ensure employees are legally authorized to work in the U.S.

Prevent illegal employment practices

Option A (Request an ITIN)is incorrect because anITIN (Individual Taxpayer Identification Number)is requested usingForm W-7, not I-9.

Option B (Determine FIT withholding)is incorrect becauseForm W-4is used for federal income tax withholding, not Form I-9.

Option C (Summarize taxable wages)is incorrect becauseForm W-2summarizes taxable wages.

Comprehensive and Detailed Explanation:Employers must reportunclaimed wagesto the state according toescheatment laws. Required information includes:

Last Known Address (A)– To help locate the employee.

Full Name (B)– To identify the rightful owner.

Payment Amount & Date (D)– To track the missing wages.

Option C (Date of Birth) is NOT requiredin most state reporting systems, as name and address are sufficient for identification.

Comprehensive and Detailed Explanation:According toForm I-9, Employment Eligibility Verification, anunexpired U.S. passportis aList A documentthat establishesbothan employee’sidentity and work authorization.

ASocial Security card(Option A) is aList C document, which only provesemployment authorizationbut not identity.

AVoter’s Registration Card(Option C) isnot an acceptable I-9 documentfor identity or work authorization.

ADriver’s License(Option D) is aList B document, which only provesidentitybut not employment eligibility.

Comprehensive and Detailed Explanation:Apayroll system upgradeaffects documentationrelated to payroll processingbutdoes not change union contracts.

Option A (User manuals):Correct –New system features require updated manuals for payroll staff.

Option C (Business continuity plans):Correct –System changes must be included in disaster recovery plans.

Option D (Standard operating procedures – SOPs):Correct –Payroll procedures need updates for new workflows.

However,union contracts (Option B) remain unchangedunless anew agreement is negotiated.

Comprehensive and Detailed Explanation:

Form 945 is used by employers to report federal income tax withheld from non-payroll payments, including backup withholding on:

Payments to independent contractors (when no valid W-9 is provided)

Certain gambling winnings

Dividend and interest payments subject to IRS backup withholding rules

Option A (Form W-9) is incorrect because Form W-9 is used by payees to provide taxpayer identification numbers (TINs), not for reporting withholding.

Option B (Form W-2) is incorrect because Form W-2 is used for employee wages and withholding, not backup withholding.

Option D (Form 941) is incorrect because Form 941 reports payroll tax withholdings, not backup withholding.

Comprehensive and Detailed Explanation:Using theIRS Percentage MethodforMarried Filing Jointly (2019 W-4):

Calculate taxable wages:

Gross pay:$2,500.00

Less pre-tax deductions:-$425.00

Taxable wages:$2,075.00

Federal Income Tax (from IRS tax tables):

Using2019 IRS Percentage MethodforMarried, Semimonthly Pay:

First $1,640.00 taxed at 10% = $164.00

Remaining $435.00 taxed at 12% = $52.20

Total FIT = $216.20

Social Security Tax (6.2%):

$2,500.00 × 6.2% = $155.00

Medicare Tax (1.45%):

$2,500.00 × 1.45% = $36.25

Other deductions:

Child Support:$100.00

Total Taxes and Deductions:

216.20+155.00+36.25+100.00=507.45216.20 + 155.00 + 36.25 + 100.00 = 507.45216.20+155.00+36.25+100.00=507.45

Net Pay Calculation:

2,500.00−507.45=1,730.362,500.00 - 507.45 = 1,730.362,500.00−507.45=1,730.36

Thus, the correct answer isB. $1,730.36.

Comprehensive and Detailed Explanation:TheReasonable Basis Testallows an employer to classify a worker as anindependent contractorif:

A previous IRS audit approved similar treatment

A court ruling or IRS ruling supports classification

Industry practices support independent contractor status

Option A (Common Law Test)determines if a worker should be anemployee or independent contractor, butdoes not override misclassification.

Option C (Physical Presence Test)applies toforeign earned income exclusions.

Option D (Permanent Resident Test)applies toimmigration status, not worker classification.

Step 1: Determine taxable wages

Regular wages:$2,000.00

Shift differential:$1,000.00

Total taxable wages = $3,000.00(Non-taxable tuition reimbursement and travel are excluded.)

Step 2: Calculate Social Security tax

$3,000 × 6.2% = $186.00 (Employer portion)

Step 3: Calculate Medicare tax

$3,000 × 1.45% = $43.50 (Employer portion)

Step 4: Total employer FICA tax

Social Security + Medicare = $186.00 + $43.50 = $229.50

Employer’s share = $229.50 × 2 = $459.00

References:

IRS Publication 15 (Employer’s Tax Guide)

Social Security and Medicare Tax Rates (IRS)

Step 1: Calculate disposable earnings

$300.00 - ($45.00 + $18.60 + $4.35) = $232.05

Step 2: Apply CCPA withholding limit

60% of $232.05 = $139.23

References:

Consumer Credit Protection Act (CCPA) - Federal Child Support Withholding Limits

Payroll Withholding Compliance Guide (Payroll.org)

Workers’ compensation includes commissions (B) as part of employee earnings.

Gratuities (A) and uniform stipends (D) are usually excluded.

References:

State Workers' Compensation Audit Guidelines

Wage assignmentsare voluntary deductions authorized by employees for things likeloan payments or union dues.

Garnishments, wage attachments, and medical support ordersarecourt-mandated deductions, making them involuntary.

References:

IRS Publication 15 (Employer’s Tax Guide)

Payroll Deduction Compliance Guide (Payroll.org)

Proper documentationensures uniformityin payroll and HR operations bystandardizing processes.

Conformity (C)refers to compliance but does not guarantee process standardization.

Responsibility (A) and adaptability (B)are important but not the primary reason for documentation.

References:

Payroll Process Standardization Guide (Payroll.org)

Comprehensive and Detailed Explanation:Awage attachment(also called awage levy) is alegal withholdingfrom an employee’s paycheck to satisfy an outstanding debt.

IRS tax leviesare a type ofwage attachmentused to collectunpaid federal taxesdirectly from an employee’s wages.

Employersmust comply immediatelywhen notified by the IRS.

Option A (Bankruptcy Order)is incorrect because bankruptcy payments are handled bycourt-appointed trustees, not wage levies.

Option B (Creditor Garnishment)is incorrect because IRS tax leviesdo not require a court orderlike private creditor garnishments.

Option C (Voluntary Deduction)is incorrect because IRS wage leviesare mandatory, not voluntary.

Comprehensive and Detailed Explanation:Acredit balancemeans an accountnormally holds a liability or revenue amount.

Accounts Payable (Option A)representsamounts owedto vendors, which is aliability accountandnormally has a credit balance.

Option B (Cash)is incorrect because cash is anasset accountandtypically has a debit balance.

Option C (Office Equipment)is incorrect because it is afixed assetand alsohas a debit balance.

Option D (Prepaid Expenses)is incorrect because prepaid expenses areassetsthat aredebited when paid.

Comprehensive and Detailed Explanation:Grossing upmeansincreasing the payment amountso that the employeereceives a specific net amountafter taxes are withheld. Employerspay the taxes on behalf of the employeein such cases.

This is commonly used for:

Relocation reimbursements

Bonus payments

Tax equalization for expatriates

Option Ais incorrect because grossing up is done to cover taxes, not to determine withholdings.

Option Bis incorrect becausegrossed-up amounts are taxable, not tax-exempt.

Option Dis incorrect becausegrossed-up payments are always taxable.

Formula:

Comprehensive and Detailed Explanation:Medicare tax is1.45%onwages up to $200,000, and2.35%(including the Additional Medicare Tax) on wagesabove$200,000.

YTD Wages before payment:$169,000.00

New total earnings after bonus:$169,000 + $16,600 = $185,600.00

Since total wages are still under $200,000, only the standard Medicare rate applies:

$16,600 × 1.45% = $240.70

Thus, the correct answer isC. $240.70.

Comprehensive and Detailed Explanation:A457(b) planis anonqualified deferred compensation planoffered primarily togovernment and tax-exempt employees.

Option A (401(k))andOption B (403(b))arequalified retirement plansunderERISA.

Option C (408(p))refers to aSIMPLE IRA, which is also aqualified plan.

Comprehensive and Detailed Explanation:Reliabilityrefers to a company’sability to provide accurate and timely service. In payroll,failing to create an ACH file results in missed payments, affecting employees andviolating reliability standards.

Option A (Empathy)is incorrect because it relates tounderstanding and addressing employee concerns, not payroll processing.

Option C (Responsiveness)is incorrect because itdeals with reaction speedrather than payroll execution.

Option D (Tangibles)is incorrect because it refers tophysical aspects of service (documents, appearance, etc.).

Comprehensive and Detailed Explanation:UnderForm I-9 retention rules, an employermust retain the form for the later of:

Three years from the date of hire, or

One year from the termination date.

Employee hired on July 1, 2021→Three years from hire date= July 1, 2024

Employee terminated on September 30, 2022→One year from termination= September 30, 2023

Since thelatest date is September 30, 2024, that is theearliest date the employer may dispose of the Form I-9.

Comprehensive and Detailed Explanation:In accounting, anormal balancerefers to theside (debit or credit) that increases the account balance.

Assets (Option A) normally have a debit balancebecause they representresources owned by the company(cash, accounts receivable, equipment, etc.).

Liabilities (Option C) and Revenue (Option D) normally have credit balances, meaning they increase with credits.

Capital (Option B) also has a normal credit balance, as it representsowner’s equity.

Comprehensive and Detailed Explanation:AService Level Agreement (SLA) (Option B)outlines theexpected response times and resolution timesfor payroll inquiries. This ensures that payroll staff provide timely assistance to employees.

Option A (General Service Contract)applies toexternal service providers, not internal payroll departments.

Option C (Standards of Excellence)refers tobroad performance benchmarks, but it does not include specific response times.

Option D (Time Management)relates topersonal efficiency, not defined service expectations.

Comprehensive and Detailed Explanation:Employersmust allocate tipsif the total reported tips areless than 8% of gross receiptsfor establishmentswhere tipping is customary.

Allocated tips are reported on Form W-2, Box 8 (Option C)butare NOT subject to withholding.

Option A is incorrectbecause allocated tipsare not subject to automatic withholding unless voluntarily reported by the employee.

Option B is incorrectbecauseemployers are responsible for accurate tip reporting.

Option D is incorrectbecause tip allocation rulesrequire reporting when applicable.

Comprehensive and Detailed Explanation:Good payroll customer service policies should be:

Reliable (Option A)– Consistent and dependable for employees.

Accurate– Ensuring payroll is error-free.

Responsive– Quick resolution of inquiries.

Option B (Fluctuating) is incorrectbecauseinconsistent policies confuse employees.

Option C (Interchangeable) is incorrectbecausepolicies must be specific to payroll needs.

Option D (Intangible) is incorrectbecausecustomer service policies should be well-defined and enforceable.

Deposits should be available on payday morning, and payroll staffmust act immediatelyif there is an issue.

Telling the employee to wait until midnight (B) is incorrectbecause itdelays actionand could lead to compliance issues.

References:

NACHA Direct Deposit Guidelines

Payroll Banking & Deposit Compliance Guide (Payroll.org)

Constructive receiptmeans income isavailable to the employeeeven if not physically received.

Option C is correctbecause when a paycheck is mailed, it isnot immediately available, delaying constructive receipt.

References:

IRS Publication 15 (Employer’s Tax Guide)

Payroll Tax Compliance Guide (Payroll.org)

Total Taxable Wages:

$5,000 + $10,000 + $7,500 + $1,000 + $15,000 = $38,500

Social Security Tax (6.2%)

$38,500 × 6.2% = $2,387.00

Medicare Tax (1.45%)

$38,500 × 1.45% = $558.25

Total FICA Tax (Employer’s share)

$2,387.00 + $558.25 = $2,945.25

References:

IRS Publication 15 (Employer’s Tax Guide)

ACA affordability safe harbors include (A), (C), and (D), but NOT Section 530 (B), which relates to independent contractor classification.

References:

Affordable Care Act Compliance Guide

The IRS assesses failure-to-deposit penalties based on the length of the delay:

1-5 days late: 2% penalty

6-15 days late: 5% penalty (Correct Answer)

More than 15 days: 10% penalty

After delinquency notice: 15% penalty

References:

IRS Deposit Penalty Guidelines (Publication 15)

Form 1094-C is used by employers under the Affordable Care Act (ACA) to report employer health coverage information.

Itincludes basic employer details, employee counts, and ACA compliance data.

Employee FITW (B), FUTA wages (C), and deceased employee payments (D) are NOT reported on Form 1094-C.

References:

IRS Form 1094-C Instructions

ACA Compliance Guidelines (Payroll.org)

A "B" Notice (Backup Withholding Notice)is sent by theIRS when a payee’s taxpayer ID does not match records.

The employer must notify the payee within30 daysto correct their details.

Failure to comply results inbackup withholding of 24%on future payments.

References:

IRS Publication 1281 (Backup Withholding Notices)

As a semiweekly depositor, if the tax liability exceeds $100,000 in a single day, the employer must deposit the full amount by the next business day.

The combined liability of $169,200 must be deposited on Monday.

References:

IRS Publication 15 (Federal Deposit Rules)

Employers are not required to "gross up" (A) taxable awards unless they choose to cover the employee’s tax liability.

The IRS mandates taxation and W-2 reporting (B, C, D).

References:

IRS Publication 15-B

Comprehensive and Detailed Explanation:Thetax deposit liabilityincludesfederal income tax withholding (FITW), Social Security tax, and Medicare tax.

Social Security Tax:

Employer & Employee each pay 6.2% on $40,000

$40,000 × 6.2% × 2 = $4,960.00

Medicare Tax:

Employer & Employee each pay 1.45% on $35,000

$35,000 × 1.45% × 2 = $1,015.00

Total Tax Deposit Liability:

$2,000 (FITW) + $4,960 (Social Security) + $1,015 (Medicare) = $7,975.00

Thus, the correct answer isA. $7,975.00.

Comprehensive and Detailed Explanation:Internal controlsare processes used to ensureaccuracy, security, and compliancein payroll operations. Effective internal controls include:

Option B (Segregating job duties)→ Prevents fraud by ensuring no one person has full control over payroll.

Option C (Rotating job duties)→ Reduces fraud risk and enhances cross-training.

Option D (Restricting system access)→ Protects sensitive payroll data.

Option A (Storing backup files on-site) is incorrectbecause internal control best practices recommendoff-site or cloud backupsto protect againstdata loss from disasters.