Practice Test Geeks(CPS) Certified Payroll Specialist Practice Test
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Risk Assessment & Underwriting Flashcards

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  1. Which IRS penalty applies when an employer willfully fails to collect, account for, and pay over trust fund taxes (FICA and income tax withholding)?

    Answer: Trust Fund Recovery Penalty (TFRP) under IRC §6672

    The TFRP under IRC §6672 holds responsible persons personally liable for 100% of unremitted trust fund taxes when willful failure to pay is established.

  2. A payroll director wants to quantify the risk of a late federal tax deposit. Under the IRS tiered penalty schedule, what is the penalty rate for a deposit that is 1-5 days late?

    Answer: 2%

    The IRS imposes a 2% penalty for deposits received 1-5 days late, escalating to 5% for 6-15 days late and 10% for deposits more than 15 days late.

  3. Under the Affordable Care Act, which employer risk is triggered when a large employer fails to offer minimum essential coverage to at least 95% of full-time employees?

    Answer: Employer Shared Responsibility Payment (ESRP) — Section 4980H(a) penalty

    Section 4980H(a) imposes an annual ESRP on Applicable Large Employers that fail the 95% offer threshold if any full-time employee receives a premium tax credit.

  4. A payroll manager is evaluating the risk of issuing paper W-2s versus electronic W-2s. Which risk is HIGHER with paper W-2s?

    Answer: Identity theft from mailed forms being intercepted or sent to incorrect addresses

    Paper W-2s mailed to employees are vulnerable to interception, address errors, and identity theft, exposing employees and creating employer liability.

  5. An employer in a state with paid family leave (PFL) fails to withhold employee PFL contributions and does not register with the state program. The primary compliance risk is:

    Answer: State assessment of back contributions, interest, penalties, and potential personal liability for responsible persons

    State PFL programs assess retroactive contributions, interest, and penalties on non-compliant employers, and some states hold responsible persons personally liable.

  6. When assessing FLSA overtime compliance risk, which scenario creates the highest exposure to back-pay liability?

    Answer: Systematically misclassifying non-exempt employees as exempt across an entire job classification

    Misclassifying an entire exempt job class means every employee in that class is owed two to three years of back overtime, creating potentially millions in liability.

  7. Which document serves as the primary underwriting tool for a bonding company when issuing an employee dishonesty (fidelity) bond to cover payroll fraud losses?

    Answer: The employer's audited financial statements and internal control questionnaire

    Fidelity bond underwriters evaluate financial strength and the quality of internal controls through audited financials and control questionnaires to assess fraud exposure.