FPC-Remote Fundamental Payroll Certification Questions and Answers

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:

When a natural disaster occurs, the first priority of any employer should be to ensure the safety and well-being of employees.

Step 1: Confirm employee safety – Employers should account for all employees and provide immediate assistance if needed.

Step 2: Assess business operations impact – Once employees are safe, the employer can begin securing records and office space.

Option A is incorrect because accessing payroll records is important but secondary to employee safety.

Option C is incorrect because temporary housing is not the employer’s primary responsibility.

Option D is incorrect because securing office space is a later step in disaster recovery.

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:Under theFair Labor Standards Act (FLSA), "white-collar exemptions" apply tocertain salaried employees who meet specific duties and salary tests. The three main categories are:

Executive (Option A)– Managers with supervisory responsibilities.

Administrative (Option B)– Employees in non-manual work related to business operations.

Outside Sales (Option C)– Sales employees working away from the employer’s place of business.

Option D (Computer Hardware Operators) is incorrectbecause this roledoes not qualifyfor exemption under the FLSA white-collar rules. Onlycertain IT professionals (software engineers, systems analysts, etc.)qualify under theComputer Employee Exemption.

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:Federal income tax withholding applies to most forms ofemployee compensation, butsome benefits are tax-exempt.

Option A (401(k) Deferral)is incorrect because pre-tax contributions to atraditional 401(k)arenot subject to federal income tax(but are subject to FICA).

Option C (Military Moving Expenses)is incorrect becausequalified military moving expensesare excluded from taxable income under theTax Cuts and Jobs Act (TCJA).

Option D (HSA Contribution)is incorrect becausepre-tax HSA contributionsmade through payroll deductionare tax-exempt.

Option B (Salary Advance) is correctbecause anyadvance on future wagesis treated astaxable compensation when paid, and income tax must be withheld.

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.

Under theFair Labor Standards Act (FLSA):

Overtime is requiredonly when an employee works more than 40 hours in a workweek.

Thetotal worked hours (excluding sick leave) = 25 hours(below 40).

No overtime is due.

References:

FLSA Overtime Rules (Department of Labor)

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)

Total taxable wages: $384.62 + $76.92 + $38.46 = $500.00

Using IRS percentage method tables, withholding = $39.04

References:

IRS Publication 15-T (Tax Withholding Tables)

Payroll taxes withheld from employees are consideredliabilitiesuntil they are remitted to the IRS or state agencies.

Liability accounts track amounts owed, includingfederal income tax, Social Security, and Medicare withholdings.

Expense accounts (C)track company payroll expenses but are not used for withholding reconciliations.

References:

IRS Payroll Accounting Guidelines

Payroll Tax Reconciliation Guide (Payroll.org)

FLSA requires that work time schedules, payroll records, and related documents be kept for a minimum of 3 years.

References:

Fair Labor Standards Act (FLSA) Recordkeeping Requirements (DOL)

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)

Leasing companies (PEOs) handle payroll and wage reporting.

Employers still set rates (C) and supervise work (D).

References:

IRS PEO Tax Responsibilities

Accrued leave is classified as a deferred assetbecause it represents an obligation to employees in the future.

References:

Payroll Accounting Standards (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)

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)

Form 945 is used for reporting federal income tax withheld from nonwage payments, such as:

Pension distributions

Gambling winnings

Certain annuities

Form 941 (B) is for employment taxes on wages.

Form 940 (A) is for FUTA taxes.

References:

IRS Form 945 Instructions

IRS Withholding Rules

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)

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)

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)

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)

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)

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

Comprehensive and Detailed Explanation:Payroll professionals must stay updated ontax laws, wage regulations, and compliance requirements. Key resources include:

A (PAYO – Payroll.org)→ Provides training, updates, and compliance resources.

B (DOL – Department of Labor)→ Overseeswage & hour laws (FLSA).

D (IRS – Internal Revenue Service)→ Issues payroll tax regulations.

Option C (FTC – Federal Trade Commission) is incorrectbecause theFTC does not regulate payroll laws. The FTC primarilymonitors consumer protection laws.

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.

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:Constructive receiptmeans an employee isconsidered paidwhen wages aremade available without restriction, even if they do not physically receive the money.

Option A (On the paycheck date)is incorrect because the date of the paycheck does not determinewhen wages are constructively received.

Option B (When cashed)is incorrect because an employee isconsidered paid before they cash the check.

Option C (When ACH file is created)is incorrect because the wages are not yet available to the employee.

Option D is correct because once wages are accessible (direct deposit or paycheck available for pickup), the IRS considers them "received" for tax purposes.

Comprehensive and Detailed Explanation:For2024, the401(k) contribution limitis:

$23,000.00 for employees under 50 years old.

$30,500.00 for employees 50 and older(includes$7,500 catch-up contribution).

Since the employee is49 years old, theydo not qualify for the catch-up contribution, so the maximum contribution is$23,000.00.

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: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:Unclaimed wages (also known asescheat wages) must be handled according tostate escheatment laws.Each statehas its own rules about how long employers must hold unclaimed wages before remitting them to thestate’s unclaimed property division.

Option Ais incorrect because voiding the check does not resolve the issue of unclaimed wages, and FormW-2cis used forcorrecting tax information, not handling unclaimed wages.

Option Bis incorrect because unclaimed wagescannotbe posted asforfeited earningswithout proper reporting to the state.

Option Cis incorrect becauseescheatment laws are governed at the state level, not federal.

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:ThePayroll Department’s key functionsinclude:

Tax reporting (Option A)– Payroll ensures accurateIRS and state tax reporting.

Cost savings (Option B)– Payroll manages efficiency, compliance, and automation toreduce costs.

Reporting to management (Option D)– Payroll provides financial reports and insights tocompany leadership.

However,giving tax advice (Option C) is NOT a function of payroll. Payroll professionalscalculate and withhold taxesbut do notprovide tax planning adviceto employees.

Comprehensive and Detailed Explanation:PayrollStandard Operating Procedures (SOPs)must beregularly updatedto maintain compliance and accuracy.

Best practice is to update SOPs whenever workflows change(Option C).

Option A (Annually)is incorrect becausewaiting a full yearcould lead to outdated procedures.

Option B (Quarterly)is incorrect unless payroll processes are highly dynamic.

Option D (When management changes)is incorrect becauseprocesses may change independently of leadership changes.

Comprehensive and Detailed Explanation:TheFamily and Medical Leave Act (FMLA)requires employers to retainall leave-related records for at least 3 years. This includes:

Employee requests for leave

Employer’s written responses

Dates and duration of leave taken

Premium payments for benefits during leave

Option A (2 years) is incorrectbecause theminimum requirement is 3 years.

Option C (4 years) and Option D (5 years) are incorrectbecause the law specifies a3-year retention period.

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: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.

In 2024, the 401(k) contribution limit for employees under 50 is $22,500.

For employees age 50 or older, an additional "catch-up" contribution of $7,500 is allowed.

Total maximum contribution = $22,500 + $7,500 = $30,000.

References:

IRS 401(k) Contribution Limits for 2024

A journal is known as the "original entry" because transactions are first recorded here before posting to the ledger.

The general ledger is the final entry (B), not the journal.

References:

Payroll Accounting Standards (Payroll.org)