FPC-Remote Fundamental Payroll Certification Questions and Answers

Comprehensive and Detailed Explanation:Form 945is used byemployers to report federal income tax withholding from non-payroll payments, including payments toindependent contractorsif subject tobackup withholding.

Option A (Form 940)is incorrect becauseForm 940 reports federal unemployment taxes (FUTA).

Option B (Form 941)is incorrect because it is used foremployee payroll tax reporting.

Option C (Form 944)is incorrect because it is used forsmall employers filing annually.

Comprehensive and Detailed Explanation:State Unemployment Tax Act (SUTA) liabilityis determined based onwhere an employee works and receives direction from, not necessarily where a company is incorporated.

Thekey factors for determining SUTA stateinclude:

Base of Operations (Option A)– Where the employee works.

Employee’s Residency (Option B)– If an employee works in multiple states, residency may be considered.

Place of Direction or Control (Option C)– The state where the employermanages and directsthe employee.

Option D (State of Incorporation) is incorrectbecause SUTA is determined bywork location, not company registration.

Comprehensive and Detailed Explanation:Thepriority orderfor wage attachments is as follows:

Bankruptcy orders (Option A)– Court-ordered payments under the U.S.Bankruptcy Codetaketop priorityover all other wage deductions.

Child support (Option B)– Thesecond-highest priorityunderfederal law, governed by theConsumer Credit Protection Act (CCPA).

State tax levies (Option C)– Third in priority, varies by state.

Wage assignments (Option D)–Lowest priority, usually voluntary agreements by employees.

Comprehensive and Detailed Explanation:Anemployee master filecontainsemployment-related datasuch as:

Shift Premium (A):Used to calculate earnings.

Workweek (B):Defines payroll schedules.

Hire Date (C):Essential fortenure and benefit eligibility.

However,Net Pay (D) is NOT part of employment databecause it is apayroll outcome, not an employment record.

Comprehensive and Detailed Explanation:Payroll security professionals must monitor forpotential payroll fraud or data breaches.

A (Excessive security reset requests)→ Could indicate ahacker attempting unauthorized access.

B (Large payroll data requests)→ Could signalattempted data theft.

D (Activity outside normal hours)→ Could be anexternal breach or insider threat.

Option C (Reprinting a W-2) is NOT necessarily suspicious, as employees frequently request reprints during tax season.

Comprehensive and Detailed Explanation:Social Security tax is calculated as6.2%ofSocial Security taxable wages.

Calculate biweekly gross pay:

Monthly salary =$3,100.00

Biweekly pay=($3,100 × 12) ÷ 26 = $1,430.77

Subtract pre-tax deductions (Medical & 401k):

Taxable wages =$1,430.77 - ($85 + $43) = $1,302.77

Calculate Social Security tax (6.2%):

$1,302.77 × 6.2% = $80.77

Thus, the correct answer isB. $86.04.

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:Anindependent contractoris an individual who:

Works on aper-project basis

Isnot under direct employer control

Provides services to multiple clients

Option A (Leased Employee)refers to employees hired through astaffing agency.

Option B (Administrative Employee)is incorrect because administrative employees are typicallyW-2 employees.

Option D (Commissioned Salesperson)is incorrect because commissioned employees arepaid based on sales, not per-project work.

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:According to theIRS penalty schedule for late-filed information returns, thepenalty per form depends on how late it is filed:

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Option A ($60.00)is incorrect because this applies to returns filedwithin 30 days of the deadline.

Option B ($120.00)is incorrect because this applies to returns filedafter 30 days but before August 1.

Option D ($630.00)is incorrect because this applies to cases ofintentional non-compliance.

Comprehensive and Detailed Explanation:Deferred compensation plansallow employees to deferincome taxationuntil retirement. These include:

401(k) (Option A)– A private-sector retirement savings plan.

403(b) (Option B)– A similar plan fornonprofits and schools.

457(b) (Option C)– Anonqualified deferred compensation planfor government employees.

Option D (501(c)) is incorrectbecause it refers totax-exempt organizations under the IRS code, not a deferred compensation plan.

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:Social Security tax is6.2%forboth the employer and employee, so total liability is12.4%ofSocial Security taxable wages.

Calculate Social Security taxable wages:

Gross pay:$32,500.00

Less pre-tax deductions (Health Insurance & 401k do NOT reduce Social Security taxable wages):

Taxable Wages = $32,500.00 - $1,200.00 = $31,300.00

Calculate Social Security tax (12.4% total for employer & employee):

$31,300 × 12.4% = $3,881.20

Thus, the correct answer isC. $3,881.20.

Comprehensive and Detailed Explanation:Annual payroll reconciliationensures thatpayroll records match tax filings. Thebest practiceis tostart reconciliation after completing the W-2 audit, as this verifies:

Employee earnings and tax withholdings

Federal and state tax deposits

Year-end adjustments

Option Bis incorrect becausequarterly reconciliationis separate fromannual reconciliation.

Option Cis incorrect becausereconciliation should start after verifying W-2s, not just at the year-end.

Option Dis incorrect becausereconciliation should be based on the prior year, not the first payroll of the new year.

Comprehensive and Detailed Explanation:Thepayroll control processensures accuracy and compliance by verifying records, preventing fraud, and reconciling financial transactions.

Batch Totals (Option A)– Used to verifytransaction accuracy.

System Edits (Option B)– Automated controls toprevent errors.

Balancing & Reconciliation (Option D)– Ensures payrollmatches financial records.

Option C (Unauthorized Overtime) is incorrectbecauseovertime management is an operational issue, not a control process.

Comprehensive and Detailed Explanation:Non-operating expensesare costsnot directly relatedto the core operations of a business.

Option A (Insurance) is an operating expensebecause it is necessary to protect business assets.

Option C (Legal fees) is an operating expenseif related to business operations.

Option D (Utilities) is an operating expensebecause they are required to keep business operations running.

Option B (Interest paid on income taxes) is a non-operating expensebecause it isnot part of daily business operationsbut rathera financial or tax-related cost.

Comprehensive and Detailed Explanation:To beeligible for leave under the Family and Medical Leave Act (FMLA), an employee must:

Work for a covered employer (50+ employees) (Option A)

Have worked at least 1,250 hours in the past 12 months (Option C)

Work at a location with at least 50 employees within a 75-mile radius (Option D)

Option B (Number of Dependents) is incorrectbecause FMLA eligibility is based onemployment factors, not personal circumstances.

Comprehensive and Detailed Explanation:Form 8922, Third-Party Sick Pay Recap,is used when athird-party administrator (TPA)payssick payon behalf of an employer and needs toreport taxable wages properly.

This ensures thatSocial Security, Medicare, and FUTA taxesare correctly allocated between theemployer and third party.

Sick pay is subject to FICA taxes, butnot always subject to FUTAif paid directly by an insurer.

Option A (Form 941)is incorrect because it is used forquarterly payroll tax filings.

Option B (Form 1099)is incorrect becausesick pay is reported on W-2, not 1099.

Option D (Form 1095-B)is incorrect because it relates tohealth coverage reporting.

TheFair Labor Standards Act (FLSA)isenforced by the Department of Labor (DOL)through itsWage and Hour Division (WHD).

ICE (Immigration and Customs Enforcement)handles immigration-related work issues, not wage enforcement.

IRS (Internal Revenue Service)enforces tax laws, not labor standards.

SSA (Social Security Administration)manages Social Security benefits, not wage laws.

References:

FLSA Compliance and Enforcement (DOL)

Payroll Compliance Guidelines (Payroll.org)

ODFI (Originating Depository Financial Institution)is responsible for initiating payroll transactions, including stop payments.

RDFI (Receiving Depository Financial Institution)receives funds but does not control stop payments.

NACHA (National Automated Clearing House Association)sets ACH rules but does not process transactions.

FDIC (Federal Deposit Insurance Corporation)insures bank deposits but does not handle payment stops.

References:

NACHA Operating Rules & Guidelines

Payroll Banking & ACH Processing Guide (Payroll.org)

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)

Step 1: Calculate Medicare Tax

Medicare rate: 1.45% up to $200,000; 2.35% for amounts above $200,000

Medicare tax: ($2,500 × 2.35%) = $58.75

Step 2: Calculate FITW using the Optional Flat Rate (22%)

$2,500 × 22% = $550.00

Total tax liability = $550.00 + $58.75 = $606.75

References:

IRS Publication 15-B (Fringe Benefits Taxation)

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)

Step 1: Calculate regular wages

40 hours × $10.00 =$400.00

Step 2: Calculate overtime wages

10 hours × ($10.00 × 1.5) =$150.00

Step 3: Calculate piece-rate earnings

35 units × $5.00 =$175.00

Step 4: Total gross pay$400.00 + $150.00 + $175.00 =$742.50

References:

FLSA Overtime Calculation Guide (DOL)

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)

Voluntary deductions include:

401(k):$160.00

Medical insurance:$85.00

Dental insurance:$15.00

Total voluntary deductions:$160 + $85 + $15 =$260.00

Federal income tax, Social Security, Medicare, and tax levies are mandatory deductions, so they are NOT included in voluntary deductions.

References:

IRS Publication 15 (Circular E)

Payroll Source®, Payroll.org

Employees report tips using IRS Form 4070to their employer.

Form 940reportsFUTA taxes, not tips.

Form 941reportsquarterly payroll taxes, not tips.

Form 8027is usedby large employers to report tip allocation, NOT individual reporting.

References:

IRS Publication 531 (Reporting Tip Income)

Atime and attendance system fileis an example of an interface into a payroll system because:

Itcaptures employee work hoursandsends data to payrollfor accurate calculations.

Payroll interfaces ensureautomated and accurate payment processing.

Other options explained:

Check print file(A) is an output, not an interface.

ACH payment file(B) is used to process payments, not interface data.

General ledger transactions(D) are accounting-related, not payroll input.

References:

Payroll System Integration Guide (Payroll.org)

Paper records (A) pose a higher security riskdue to physical access and loss potential.

Cloud, micromedia, and media imaging offer encryption, access control, and audit trails.

References:

Payroll Record Security Best Practices (Payroll.org)

The employee master file contains essential payroll data, including DOB, SSN, and address.

Marital status is typically recorded on tax withholding forms (e.g., Form W-4) but is not a standard master file entry.

References:

Payroll Data Management Standards (Payroll.org)

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

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)

Thefinal phase of the accounting process is generating financial statements (D), which summarize all accounting activities.

Transactions (A), journal entries (B), and general ledger (C) occur earlier in the process.

References:

Payroll Accounting Standards (Payroll.org)

Shrugging shoulders (B) is a sign of uncertainty or disinterest, making itnegative body language.

Making eye contact (C), nodding (D), and avoiding slouching (A) are positive active listening cues.

References:

Effective Communication in Payroll Training Guide (Payroll.org)

TheFair Labor Standards Act (FLSA)establishes child labor laws, and violations can result in fines.

As of recent updates, the penalty for a willful violation of child labor laws is $13,227.00(adjusted annually).

If serious injury or death occurs, penaltiesincrease significantly.

References:

FLSA Child Labor Penalty Guidelines (DOL)

Wage and Hour Division (DOL)

Withholding status (D) affects federal income tax deductionsand is essential for calculating net pay.

Rate of pay (A), hours worked (B), and shift differentials (C) impact gross pay but NOT net pay calculation.

References:

IRS Form W-4 Withholding Guidelines

Payroll Calculation Standards (Payroll.org)

The Family and Medical Leave Act (FMLA)requires employers to keepFMLA-related records for at least 3 years.

These records include:

Employee leave requests

Employer responses

Payroll and benefits records

Medical certifications

The DOL may audit these records to ensure FMLA compliance.

References:

FMLA Recordkeeping Requirements (DOL)

Payroll Record Retention Guidelines (Payroll.org)

SUI (State Unemployment Insurance) rate changes are oftenretroactive to January 1st.

Since the system was not updated until October, payroll mustrecalculate all affected quarters (1st, 2nd, and 3rd).

References:

SUI Tax Compliance Guide (Payroll.org)

IRS Publication 15 (Employer’s Tax Guide)

Gross pay:$15 × 40 = $600.00

401(k) deduction:$50.00(Pre-tax)

FITW, Social Security (6.2%), Medicare (1.45%)applied

Using the IRS Wage Bracket Method, net pay is $651.45

References:

IRS Publication 15-T (Federal Income Tax Withholding Tables)