APA Payroll Administration and Management 3 — Questions and Answers
Question 1: Which of the following is considered a supplemental wage payment subject to a flat 22% federal withholding rate (below $1 million threshold)?
- Regular bi-weekly salary
- Retroactive pay adjustment for a prior period (Correct answer)
- Employee expense reimbursement under an accountable plan
- Pre-tax 401(k) contributions
Correct answer: Retroactive pay adjustment for a prior period
Retroactive pay is a supplemental wage; employers may withhold at the optional flat 22% rate for supplemental wages below the $1 million threshold.
Question 2: Under a non-accountable plan, employee expense reimbursements are treated as:
- Tax-free fringe benefits excluded from all taxes
- Taxable wages subject to income tax, FICA, and FUTA withholding (Correct answer)
- Deferred compensation reported on Form 1099-NEC
- Business deductions on the employer's corporate return only
Correct answer: Taxable wages subject to income tax, FICA, and FUTA withholding
Reimbursements under a non-accountable plan (no business purpose requirement or substantiation) are treated as supplemental wages, fully taxable to the employee.
Question 3: An employee receives a $5,000 cash award from their employer for outstanding performance. How is this typically treated for payroll purposes?
- Excluded from wages as a de minimis fringe benefit
- Included in wages and subject to income tax and FICA (Correct answer)
- Excluded from FICA but subject to income tax withholding only
- Reported on Form 1099-MISC, not on the W-2
Correct answer: Included in wages and subject to income tax and FICA
Cash awards, regardless of the reason, are taxable wages subject to both income tax withholding and FICA taxes.
Question 4: Which payroll method calculates each employee's net pay independently based on their specific tax withholding elections?
- Net-to-gross method
- Percentage method (Correct answer)
- Wage-bracket method
- Individual computation method
Correct answer: Percentage method
The percentage method uses IRS Publication 15-T tables and each employee's W-4 data to compute withholding for any payroll frequency.
Question 5: FUTA tax is deposited using Form 941 quarterly. Which statement about FUTA is correct?
- FUTA is shared equally between employer and employee
- FUTA is deposited using Form 941 quarterly
- The FUTA tax rate is 6% on the first $7,000 of each employee's wages, paid solely by the employer (Correct answer)
- FUTA is calculated on all wages with no wage base limit
Correct answer: The FUTA tax rate is 6% on the first $7,000 of each employee's wages, paid solely by the employer
FUTA is exclusively an employer tax at 6% on the first $7,000 of each employee's annual wages, with a credit of up to 5.4% for timely state unemployment tax payments.
Question 6: A payroll department discovers it overpaid an employee by $500 in a prior pay period. What is the most appropriate first step?
- Immediately file an amended Form 941-X
- Notify the employee, determine the cause, and arrange repayment in accordance with state wage recoupment laws (Correct answer)
- Adjust the next paycheck without notifying the employee
- Write off the overpayment as a payroll expense
Correct answer: Notify the employee, determine the cause, and arrange repayment in accordance with state wage recoupment laws
State laws govern overpayment recovery; the employer must notify the employee and follow the state's wage recoupment rules before deducting from future pay.
Question 7: Which IRS form is used to report and deposit Additional Medicare Tax withheld from employees earning over $200,000?
- Form 944
- Form 945
- Form 941 (Correct answer)
- Form 8959
Correct answer: Form 941
Additional Medicare Tax withheld from employees is reported on Form 941 (the quarterly employer tax return) along with regular Medicare and Social Security taxes.
APA Payroll Administration and Management 3
Which of the following is considered a supplemental wage payment subject to a flat 22% federal withholding rate (below $1 million threshold)?