Free Fundamental Payroll Certification MCQ Question and Answers — Questions and Answers
Question 1: What impact does an employer paying the employee's portion of Social Security and Medicare taxes on a fringe benefit have on the employee's income?
- The amount of the fringe benefit is included in the employee's income (Correct answer)
- There is no change
- There are no Social Security or Medicare taxes on fringe benefits
- The taxes paid by the employer are considered income to the employee
Correct answer: The amount of the fringe benefit is included in the employee's income
When an employer pays an employee's portion of Social Security and Medicare taxes on a fringe benefit, this payment itself is considered additional taxable income to the employee. This is because the employer is essentially providing an additional benefit by covering the employee's tax liability. Therefore, the value of the fringe benefit, plus the employer-paid FICA taxes, must be included in the employee's gross income for tax purposes.
Question 2: What methodology is employed to assess the worth of a fringe benefit that an employer offers to a worker?
- Actual cash value
- General valuation rule (Correct answer)
- Actual market value
- Implied benefit value
Correct answer: General valuation rule
The IRS uses the 'general valuation rule' to determine the value of most fringe benefits provided to employees. This rule states that the value of a fringe benefit is its fair market value (FMV), which is the amount an individual would have to pay in an arm's-length transaction to buy or lease the benefit from an unrelated third party. This ensures the benefit is taxed appropriately as part of the employee's compensation.
Question 3: Which form might an employee use to report tips received to an employer?
- Form 940
- Form 8109
- Form 1096
- Form 4070 (Correct answer)
Correct answer: Form 4070
Employees who receive $20 or more in tips in a calendar month are required to report these tips to their employer. The IRS Form 4070, 'Employee's Report of Tips to Employer,' is the specific form designed for this purpose. This allows the employer to accurately report the employee's total wages, including tips, for tax withholding and FICA purposes.
Question 4: How should the employer calculate the employee's withholding if the employee doesn't submit a Form W-4?
- Single with the box checked in step 2, part c
- Married with the box checked in step 2, part c
- Single with no other adjustments (Correct answer)
- Married with no other adjustments
Correct answer: Single with no other adjustments
If an employee fails to submit a Form W-4, the IRS instructs employers to calculate federal income tax withholding as if the employee selected 'Single' with no other adjustments. This default setting results in the highest amount of tax withheld. This ensures that the employee is unlikely to be under-withheld, protecting both the employee from a large tax bill and the IRS from uncollected taxes.
Question 5: Which employees of a corporation must adhere to a confidentiality agreement respecting personnel records?
- Every employee
- Human Resources and Payroll (Correct answer)
- Payroll and an employee's supervisor
- Human Resources and an employee's supervisor
Correct answer: Human Resources and Payroll
Personnel records contain sensitive and confidential information about employees, including personal details, compensation, performance, and medical data. Due to the nature of their roles, Human Resources and Payroll departments are primarily responsible for maintaining and accessing these records. Therefore, employees in these departments are typically required to adhere to strict confidentiality agreements to protect employee privacy and comply with legal regulations.
Question 6: What situation can lead an employee to file a lawsuit against an employer for breaking the Americans with Disabilities Act?
- The confidentiality of an employee's medical records is compromised (Correct answer)
- Employee medical information is released to a supervisor
- Medical records are provided to an insurance company for a medical exam
- Medical records are not kept in a separate locked file cabinet
Correct answer: The confidentiality of an employee's medical records is compromised
The Americans with Disabilities Act (ADA) mandates strict confidentiality for employee medical records, requiring them to be kept separate from general personnel files and accessible only to those with a legitimate need. A breach of this confidentiality, such as unauthorized disclosure of medical information, can lead to an employee filing a lawsuit against the employer. This protection ensures privacy and prevents discrimination based on health status.
Question 7: Which of the following punishments is not imposed on an employer that submits a W-2 form that is incomplete or incorrect?
- $100 for each W-2 form if the employer ignores the W-2 filing requirement
- $50 for each W-2 form that isn't filed by August 1st
- $15 for each W-2 form that is properly filed within 30 days
- $35 for each W-2 form that is properly filed after 30 days but before August 1st (Correct answer)
Correct answer: $35 for each W-2 form that is properly filed after 30 days but before August 1st
The IRS imposes a tiered penalty system for employers who submit incomplete or incorrect W-2 forms, with penalty amounts increasing based on the delay and severity of the error. While penalties exist for filings within 30 days (e.g., $15), after 30 days but before August 1st (e.g., $30 or $50 depending on the year), and after August 1st (e.g., $50 or more), a specific penalty of $35 for forms filed after 30 days but before August 1st is not a standard or recognized tier in the IRS penalty schedule. Other amounts are typically applied for that timeframe.
Free Fundamental Payroll Certification MCQ Question and Answers
What impact does an employer paying the employee's portion of Social Security and Medicare taxes on a fringe benefit have on the employee's income?