CPP CPP Quality & Compliance 3 — Questions and Answers
Question 1: A company pays employees semi-monthly. In December, a payday falls on December 31, but the office is closed. The employer pays on December 29 instead. For Form W-2 purposes, in which tax year are those wages reported?
- The following year, since the check date was moved
- The current year, because wages are constructively received when available (Correct answer)
- Split between both years based on the original scheduled date
- The year the employee cashes the check
Correct answer: The current year, because wages are constructively received when available
Wages are constructively received when made available to the employee, so wages paid December 29 are reported in the current tax year.
Question 2: Under the Affordable Care Act (ACA), which IRS form does an applicable large employer use to report health coverage information to the IRS about its full-time employees?
- Form 1094-B
- Form 1095-B
- Form 1094-C (Correct answer)
- Form 1099-HC
Correct answer: Form 1094-C
Applicable large employers file Form 1094-C as the transmittal form and furnish Form 1095-C to employees; Form 1094-C is the IRS reporting form for ALE information.
Question 3: An employer failed to deposit payroll taxes by the required due date. The IRS assessed a failure-to-deposit penalty. Under which circumstances can the employer qualify for abatement of the penalty?
- The employer has never been penalized before and had reasonable cause for the failure (Correct answer)
- The employer corrects the deposit within 180 days of the due date
- The employer files Form 941 on time regardless of deposit timing
- The amount of the late deposit was less than $500
Correct answer: The employer has never been penalized before and had reasonable cause for the failure
The IRS may abate failure-to-deposit penalties for first-time filers or where the taxpayer demonstrates reasonable cause and no willful neglect.
Question 4: For payroll tax purposes, what is the significance of the 'common law' test for determining worker classification?
- It determines whether a worker qualifies for overtime pay
- It examines behavioral, financial, and type-of-relationship factors to classify workers as employees or independent contractors (Correct answer)
- It establishes the minimum wage rate applicable to the worker
- It is used only by state agencies, not the IRS
Correct answer: It examines behavioral, financial, and type-of-relationship factors to classify workers as employees or independent contractors
The IRS common law test uses behavioral control, financial control, and relationship-of-the-parties factors to determine if a worker is an employee or an independent contractor.
Question 5: A payroll department uses a checklist to verify each payroll run before funds are released. This practice is an example of which type of internal control?
- Detective control
- Preventive control (Correct answer)
- Corrective control
- Compensating control
Correct answer: Preventive control
A pre-payment checklist is a preventive control because it stops errors before they occur rather than detecting them afterward.
Question 6: When reconciling payroll, which comparison helps verify that employee deduction amounts remitted to benefit carriers match the amounts deducted from employee paychecks?
- Comparing Form 941 totals to the general ledger
- Comparing carrier invoices to payroll deduction registers (Correct answer)
- Comparing W-2 totals to Form 1099-NEC totals
- Comparing bank ACH files to time and attendance records
Correct answer: Comparing carrier invoices to payroll deduction registers
Reconciling benefit carrier invoices against payroll deduction registers confirms that deductions collected from employees were correctly remitted to the carrier.
Question 7: An employee receives a $600 performance award paid through payroll. What is the correct supplemental withholding rate for federal income tax if using the flat rate method?
- 10%
- 22% (Correct answer)
- 24%
- 37%
Correct answer: 22%
The IRS flat supplemental withholding rate for federal income tax is 22% for supplemental wages up to $1 million.
CPP CPP Quality & Compliance 3
A company pays employees semi-monthly.
In December, a payday falls on December 31, but the office is closed.
The employer pays on December 29 instead.
For Form W-2 purposes, in which tax year are those wages reported?