FPC-Remote Fundamental Payroll Certification Question and Answers

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)

TheInternal Revenue Service (IRS)is responsible for issuing updates related toForms W-2 and W-3under federal tax laws.

SSA (Social Security Administration)processes W-2s but does not initiate changes.

OCSS (Office of Child Support Services)andUSCIS (U.S. Citizenship and Immigration Services)are not involved in payroll tax forms.

References:

IRS Publication 15 (Employer’s Tax Guide)

IRS Form W-2 & W-3 Guidelines

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

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)

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:UnderFair Labor Standards Act (FLSA) rounding rules, employers may round employee timeto the nearest 15-minute incrementusing the7-minute rule:

If an employee clocks inbefore the 7-minute mark, rounddown.

If an employee clocks inafter the 7-minute mark, roundup.

Employee's actual times:

Clock in: 8:07 a.m.→ Roundeddown to 8:00 a.m.

Clock out: 4:08 p.m.→ Roundedup to 4:15 p.m.

Thus, the correct answer isD. 8:00 a.m. to 4:15 p.m..

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: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.

Comprehensive and Detailed Explanation:Social Security tax is calculated at6.2%ofSocial Security taxable wages.

Determine taxable wages:

Gross salary =$2,435.76

Subtract pre-tax deductions (Section 125 and HSA):

Medical:$45.00

Dental:$9.00

HSA:$100.00

Taxable wages=$2,435.76 - ($45 + $9 + $100) = $2,281.76

Social Security tax = $2,281.76 × 6.2% = $141.47

Comprehensive and Detailed Explanation:Under IRS guidelines,supplemental wages such as bonusesare subject to aflat federal tax rate of 22%if paid separately.

Federal Tax Calculation:

$1,753.00 × 22% = $385.66

Rounded to the nearest cent, the closest answer is$385.00.

Thus, the correct answer isA. $385.00.

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.

The ACA (Affordable Care Act) was enacted to reform healthcare.

It mandates employer-provided health insurance and individual coverage.

References:

Affordable Care Act (IRS)

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:Section 125 Cafeteria Plan deductionsinclude onlypre-tax health and dental insurance contributions.

Eligible Pre-Tax Deductions:

Health Insurance Premiums: $50.00

Dental Insurance Premiums: $20.00

Total Section 125 Deductions: $70.00

Non-Eligible Deductions:

Charitable Contributions ($5.00) → Not pre-tax.

457(b) Deferral ($100.00) → Retirement savings, not a Section 125 deduction.

Thus, the correct answer isA. $70.00.

Comprehensive and Detailed Explanation:Toproperly reconcile payroll tax liability accounts, the following steps are performed:

Compare account entries against payroll registers (C)– Ensures wages, deductions, and taxes are posted correctly.

Verify checks issued by accounts payable (B)– Confirms tax payments were made.

Match account activity with quarterly tax returns (D)– Ensures payroll taxes were reported correctly on Form 941.

Option A (Entries from company accountants) is incorrectbecauseaccountants do not create payroll entries; payroll is recordedbased on actual payroll transactions, not estimates or adjustments from accountants.

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:Business transactions are classified usingfive main types of accounts:

Asset– Resources owned (e.g., cash, equipment, accounts receivable).

Liability– Amounts owed (e.g., payroll taxes, loans).

Expense– Costs incurred to operate the business (e.g., payroll expenses).

Revenue– Income earned (e.g., sales, service fees).

Equity– Owner’s interest in the business (e.g., retained earnings).

Option A is incorrectbecause "Inventory" is atype of asset, not a separate category.

Option C is incorrectbecause "Cash" is asubcategory of assets, not a primary account type.

Option D is incorrectbecause "Net Income" is the result ofrevenues minus expenses, not a separate account category.

Comprehensive and Detailed Explanation:If an employerover-withholds federal taxes from an employee's paycheck, the employer can file anadjustmentusingForm 941-X(Adjusted Employer's Quarterly Federal Tax Return).

Form 941 (Option A)is incorrect because it is used toreport current payroll taxes, not to correct past errors.

Form W-2 (Option C)is incorrect because itreports wages and taxes withheld but does not allow corrections.

Form W-4 (Option D)is incorrect because it isused by employees to adjust withholding allowances.

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:AJournal(Option C) is thefirst placewhere business transactions are recorded inchronological orderbefore posting to theGeneral Ledger.

Option A (Balance Sheet)is incorrect because it is afinancial statement, not a transaction log.

Option B (General Ledger)is incorrect because transactionsmust first be recorded in a journal before being posted.

Option D (Trial Balance)is incorrect because it isa summary of ledger balances used for reconciliation.

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: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: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.

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:Workflow mappingis avisual representation of payroll processesto ensureefficiency and accuracy.

Option A (Logical thought processes)ensuresclarityand eliminates assumptions.

Option B (Depictions of sequences)accurately describesworkflow design.

Option C (Steps follow without delay)ensuresprocess efficiency.

Option D is incorrectbecause it describesService Level Agreements (SLA), notworkflow mapping.

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.

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

References:

Payroll Accounting Standards (Payroll.org)

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)

Leasing companies (PEOs) handle payroll and wage reporting.

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

References:

IRS PEO Tax Responsibilities

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)

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)

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)

Step 1: Calculate excess GTL coverage

Employee GTL coverage =$78,000 × 2 = $156,000

Excludable amount =$50,000

Taxable excess =$156,000 - $50,000 = $106,000

Step 2: Use IRS Table for GTL Taxable Rates (for age 53: $0.23 per $1,000 of coverage)

$106 × $0.23 = $24.38 per month

References:

IRS Publication 15-B (Taxable Group Term Life Insurance)

Form 941 is used to report quarterly employment taxes(including federal income tax, Social Security, and Medicare).

Form 940 reports FUTA taxes (A), not quarterly employment taxes.

Form 944 is for small employerswho file annually instead of quarterly.

Form 945 is for non-wage income withholding (D).

References:

IRS Form 941 Instructions

E-mail is NOT a secure methodfor protecting sensitive payroll and HR data.

Best practices includedata encryption, access control, and employee training.

References:

Data Security Standards (Payroll.org)

IRS Data Protection Guidelines

Payroll account reconciliation ensures all financial data is accurate and balanced.

Payroll register reconciliation (D) is a separate processused for payroll audits, not monthly account reconciliation.

References:

Payroll Reconciliation Procedures (Payroll.org)

IRS Payroll Recordkeeping Guidelines

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)

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)

Cash equivalents, such as gift cards (A), are always taxable income.

Nominal gifts (B, C, D) are generally tax-exempt under de minimis rules.

References:

IRS Publication 15-B (Taxable Fringe Benefits)