Fundamental Payroll Certification Exam — Questions and Answers

Question 1: What is the FLSA record-keeping requirement for payroll records of non-exempt employees?

Two years
Three years (Correct answer)
One year
Five years

Correct answer: Three years

The FLSA requires employers to retain payroll records, including hours worked and wages paid, for at least three years.

Question 2: A company's primary office is suddenly inaccessible due to a flood, and the on-site payroll server is destroyed. Which element of a business continuity plan is most critical for ensuring payroll can still be processed on time?

A policy for paying exempt employees during a business closure.
Regularly maintained off-site or cloud-based backups of payroll data and system software. (Correct answer)
A designated emergency meeting spot for the payroll team.
Printed copies of the prior year's employee W-2s.

Correct answer: Regularly maintained off-site or cloud-based backups of payroll data and system software.

In a disaster that makes the primary system and data unavailable, having secure, accessible off-site or cloud-based backups is the most critical component for restoring operations and processing payroll. This allows the payroll team to recover the necessary information and run payroll from an alternate location.

Question 3: An employee who is a new hire must have their Form I-9 completed no later than:

By the end of their first day of work
Before their first day of work
Within 30 days of hire
Within 3 business days of their first day of work (Correct answer)

Correct answer: Within 3 business days of their first day of work

Section 1 of Form I-9 must be completed by the employee no later than the first day of employment, while the employer must complete Section 2 within 3 business days of the employee's first day.

Question 4: Which organization offers the Fundamental Payroll Certification (FPC) designation?

Society for Human Resource Management (SHRM)
American Payroll Association (APA) (Correct answer)
IRS Taxpayer Advocate Service
National Payroll Reporting Consortium

Correct answer: American Payroll Association (APA)

The American Payroll Association (APA) administers both the FPC and the Certified Payroll Professional (CPP) credentials.

Question 5: A company stores payroll records in a cloud-based system and then deletes them after the required retention period. What additional step should be documented during an audit?

Evidence that paper copies were printed before deletion
A certified destruction record or deletion log confirming records were properly disposed of after the retention period (Correct answer)
Proof that the cloud provider is IRS-approved
A waiver from the Department of Labor authorizing electronic disposal

Correct answer: A certified destruction record or deletion log confirming records were properly disposed of after the retention period

Maintaining a destruction log documents that records were retained for the required period and then disposed of appropriately.

Question 6: Under IRS rules, supplemental wages paid separately from regular wages (e.g., a standalone bonus check) are subject to a flat federal withholding rate of:

37%
10%
28%
22% (Correct answer)

Correct answer: 22%

The IRS optional flat rate for supplemental wages paid separately is 22% (for amounts under $1 million) for federal income tax withholding.

Question 7: Which of the following would cause a payroll bank account reconciliation to show an outstanding item?

An employee's paycheck that has not yet been cashed (Correct answer)
An employer FICA deposit made via EFTPS
A voided paycheck recorded in the same period
A direct deposit credited the same day as payroll

Correct answer: An employee's paycheck that has not yet been cashed

An uncashed paycheck creates an outstanding check that appears on the bank reconciliation until the employee cashes it.

Question 8: An employee receives retroactive pay of $800 covering prior pay periods. For withholding purposes, the employer should:

Spread the $800 across the prior periods and amend each payroll
Withhold based on the pay period in which the retroactive pay is actually paid (Correct answer)
Exclude it from withholding as it is a correction, not new income
Apply the 22% supplemental flat rate since it is back pay

Correct answer: Withhold based on the pay period in which the retroactive pay is actually paid

Retroactive pay is treated as supplemental wages and withheld in the pay period it is actually paid, using either the flat 22% rate or the aggregate method.

Question 9: A non-exempt employee earns $18/hour and works 46 hours in a week. What is the total gross pay?

$828.00
$972.00
$864.00
$882.00 (Correct answer)

Correct answer: $882.00

(40 × $18) + (6 × $27) = $720 + $162 = $882.00; the 6 overtime hours are paid at 1.5× the regular rate.

Question 10: Which of the following applies IF an independent contractor fails to give a TIN number?

Back up withholding of 40%
Back up withholding of 28% (Correct answer)
Garnishment of 1099 income
Monetary fines

Correct answer: Back up withholding of 28%

If an independent contractor fails to provide a Taxpayer Identification Number (TIN) to the payer, the IRS requires the payer to withhold a percentage of payments as 'backup withholding.' This rate is currently 24%, though it has been 28% in previous years. This measure ensures that taxes are collected even if the contractor does not report their income.

Question 11: A large restaurant employs 50 people. During a pay period, the total reported tips from all employees are less than 8% of the restaurant's gross receipts. What is the employer required to do?

Pay the difference to the employees as a non-taxable bonus.
Allocate the shortfall among the tipped employees and report it on Form W-2. (Correct answer)
Withhold additional income tax from the employees to cover the 8% threshold.
File a special report with the Department of Labor explaining the tip shortfall.

Correct answer: Allocate the shortfall among the tipped employees and report it on Form W-2.

If the total tips reported by employees at a large food or beverage establishment are less than 8% of gross receipts, the employer must allocate the difference among the employees who receive tips. This allocated amount is reported in Box 8 of the employee's Form W-2 and on the employer's Form 8027.

Question 12: Which of the following is classified as a current liability on the balance sheet?

Accrued wages payable (Correct answer)
Equipment
Prepaid insurance
Depreciation expense

Correct answer: Accrued wages payable

Accrued wages payable are obligations expected to be paid within 12 months and are therefore current liabilities.

Question 13: Which category of workers is generally EXEMPT from FLSA overtime requirements?

Hourly retail clerks earning $8/hour
Part-time warehouse workers
Salaried executive managers earning $684+/week (Correct answer)
Hourly food service employees

Correct answer: Salaried executive managers earning $684+/week

The FLSA white-collar exemptions cover executive, administrative, and professional employees who are paid on a salary basis of at least $684/week and meet specific duties tests.

Question 14: Workers' compensation insurance premiums paid in advance are initially recorded as a:

Workers' Compensation Expense
Current liability
Accrued liability
Prepaid expense (asset) (Correct answer)

Correct answer: Prepaid expense (asset)

Premiums paid before the coverage period begins are prepaid expenses and are expensed ratably over the coverage period.

Question 15: Which of the following is a valid FLSA exemption from both minimum wage AND overtime requirements?

Outside sales employees (Correct answer)
Computer employees earning at least $27.63/hour
Seasonal amusement park workers in some circumstances
Retail employees earning commission

Correct answer: Outside sales employees

Outside sales employees who primarily make sales away from the employer's place of business are exempt from both minimum wage and overtime under the FLSA.

Question 16: An employee earns $18/hr and works 44 hours in a week. Assuming FLSA overtime rules apply, what is their gross pay?

$792.00
$864.00
$828.00 (Correct answer)
$846.00

Correct answer: $828.00

40 hrs × $18 = $720 regular + 4 hrs × $27 (1.5× rate) = $108 OT; total = $828.

Question 17: Which of the following correctly defines 'disposable earnings' for garnishment calculation purposes?

Net take-home pay after all deductions
Gross wages minus all payroll deductions including voluntary ones
Total compensation including employer-paid benefits
Gross earnings minus legally required deductions (Correct answer)

Correct answer: Gross earnings minus legally required deductions

Disposable earnings equal gross wages minus only legally required deductions such as federal, state, and local income taxes and mandatory retirement contributions.

Question 18: Which of the following workers is generally considered an independent contractor and not subject to employer payroll tax withholding?

A worker who provides services using their own tools and sets their own schedule (Correct answer)
A worker who receives employer-provided training and equipment
A worker whose hours and methods are controlled by the company
A worker who performs services integral to the company's core business

Correct answer: A worker who provides services using their own tools and sets their own schedule

A worker who controls their own schedule and uses their own tools is typically classified as an independent contractor, exempt from payroll tax withholding.

Question 19: What is the filing deadline for submitting Copy A of Form W-2 to the Social Security Administration when filing electronically?

January 31 (Correct answer)
February 28
March 31
April 15

Correct answer: January 31

The deadline for submitting W-2 Copy A to the SSA is January 31, regardless of whether you file on paper or electronically.

Question 20: What is the primary purpose of a payroll register?

To store W-2 forms
To track employee attendance
To file quarterly tax returns
To document each employee's earnings and deductions for a pay period (Correct answer)

Correct answer: To document each employee's earnings and deductions for a pay period

A payroll register is a summary record showing each employee's gross pay, deductions, and net pay for a specific pay period.

Question 21: Which of the following statements best describes the purpose of Form W-3, Transmittal of Wage and Tax Statements?

It is a summary form that totals all information from the individual Forms W-2 and is filed with the Social Security Administration. (Correct answer)
It is filed by an employer to report quarterly federal tax liabilities.
It is provided to each employee, summarizing their annual wages and withholdings.
It is used by employees to claim exemption from federal income tax withholding.

Correct answer: It is a summary form that totals all information from the individual Forms W-2 and is filed with the Social Security Administration.

Form W-3 is a transmittal form that summarizes the total earnings, Social Security wages, Medicare wages, and withholdings for all employees as reported on their individual Forms W-2. It serves as a cover sheet when the employer sends Copy A of all employee Forms W-2 to the Social Security Administration (SSA).

Question 22: Which type of payroll audit compares total payroll register amounts to general ledger accounts to identify discrepancies?

Operational audit
Reconciliation audit (Correct answer)
Compliance audit
Tax audit

Correct answer: Reconciliation audit

A reconciliation audit matches payroll register totals against the general ledger to ensure financial accuracy.

Question 23: Which of the following best describes a self-service payroll portal for employees?

A government portal for filing tax returns
An online platform where employees can view pay stubs and update personal information (Correct answer)
A system where HR manually enters all employee changes
A database accessible only to payroll administrators

Correct answer: An online platform where employees can view pay stubs and update personal information

Employee self-service portals allow workers to independently access pay stubs, W-2s, and update direct deposit or personal details.

Question 24: Under the Fair Labor Standards Act (FLSA), non-exempt employees must be paid overtime at a rate of at least:

1.5 times their regular rate (Correct answer)
2.0 times their regular rate
1.25 times their regular rate
1.75 times their regular rate

Correct answer: 1.5 times their regular rate

The FLSA requires that covered non-exempt employees be paid at least 1.5 times (time-and-a-half) their regular rate for hours worked over 40 in a workweek.

Question 25: A payroll system integration with an HR system of record is most valuable for:

Automatically syncing employee demographic and status changes to payroll (Correct answer)
Generating W-2 forms at year-end
Calculating federal income tax withholding
Processing direct deposit transactions

Correct answer: Automatically syncing employee demographic and status changes to payroll

HR-to-payroll integration ensures that hires, terminations, pay changes, and demographic updates flow automatically, reducing manual data entry errors.

Question 26: Under IRS rules, when must a new employee complete Form W-4?

Within the first full pay period
At the end of the calendar year
Before or on their first day of work (Correct answer)
Within 30 days of their start date

Correct answer: Before or on their first day of work

The IRS requires employees to furnish a completed W-4 before or on their first day so that proper withholding can begin immediately.

Question 27: An employee's direct deposit fails on payday. Under most state laws, the employer must:

Issue a paper check or replacement payment promptly (Correct answer)
Deduct a fee from the employee's next paycheck
File a correction with the IRS within 10 days
Wait until the next pay period to reissue payment

Correct answer: Issue a paper check or replacement payment promptly

Employers are generally required to ensure employees receive their pay on time, so a failed direct deposit must be remedied with a prompt replacement payment.

Question 28: An employer receives a federal tax levy, a creditor garnishment, and a child support order for an employee. Which of these involuntary deductions generally has the highest priority?

Federal tax levy
Child support order (Correct answer)
Whichever order was received first
Creditor garnishment

Correct answer: Child support order

The generally accepted order of priority for involuntary deductions places child support orders first. Federal tax levies are typically second, followed by other federal, state, and local garnishments, with creditor garnishments having a lower priority.

Question 29: When an employer provides group-term life insurance coverage exceeding $50,000, the excess coverage cost is:

Exempt from all taxes as a de minimis fringe benefit
Taxable only for employees earning more than $100,000
Taxable to the employee based on the IRS Uniform Premium Table (Table I) rates (Correct answer)
Deducted dollar-for-dollar from the employee's paycheck

Correct answer: Taxable to the employee based on the IRS Uniform Premium Table (Table I) rates

Under IRC Section 79, the cost of employer-provided group-term life insurance over $50,000 is included in the employee's wages using IRS Table I rates.

Question 30: A payroll department discovers that an employee was overpaid $300 in the prior period. Which entry corrects the balance sheet if repayment is received in cash?

Debit Wages Payable $300 and credit Wages Expense $300
Debit Cash $300 and credit Wages Payable $300
Debit Cash $300 and credit Wages Expense $300 (Correct answer)
Debit Wages Expense $300 and credit Cash $300

Correct answer: Debit Cash $300 and credit Wages Expense $300

Receiving repayment of an overpayment increases Cash and reduces (credits) the Wages Expense originally overstated.

Question 31: Employer-provided group-term life insurance becomes taxable to the employee when coverage exceeds what amount?

$100,000
$75,000
$25,000
$50,000 (Correct answer)

Correct answer: $50,000

The cost of employer-provided group-term life insurance exceeding $50,000 in coverage must be included in the employee's taxable wages.

Question 32: What is the primary purpose of Form 944 (Employer's Annual Federal Tax Return)?

To reconcile year-end W-2 totals with quarterly 941 filings
To report wages for employees with annual earnings under $600
To allow very small employers to file and pay employment taxes once per year instead of quarterly (Correct answer)
To report FUTA taxes annually

Correct answer: To allow very small employers to file and pay employment taxes once per year instead of quarterly

Form 944 allows small employers with annual employment tax liability of $1,000 or less to file and pay once a year rather than quarterly.

Question 33: An employee's W-4 (2020 or later) shows $200 in Step 3 credits. How does this affect withholding calculation using the Percentage Method?

It reduces annual taxable wages by $200
It reduces tentative withholding by $200 (Correct answer)
It has no effect until year-end
It increases tentative withholding by $200

Correct answer: It reduces tentative withholding by $200

Step 3 credits on the 2020+ W-4 reduce the tentative withholding amount calculated from the bracket tables, not the taxable wage base.

Question 34: COBRA continuation coverage allows a qualified beneficiary to continue group health coverage for up to how many months after most qualifying events?

18 months (Correct answer)
24 months
12 months
36 months

Correct answer: 18 months

COBRA generally provides up to 18 months of continuation coverage for employees and their dependents after most qualifying events such as job loss.

Question 35: Which pay frequency results in the highest per-paycheck gross amount for a $60,000 annual salary?

Weekly
Semimonthly
Monthly (Correct answer)
Biweekly

Correct answer: Monthly

Monthly pay has only 12 periods per year, so each check equals $60,000 ÷ 12 = $5,000, the largest single paycheck amount.

Question 36: Under the FLSA, an employer's 'workweek' is defined as:

A calendar month divided by four
Monday through Friday only
The period from the first paycheck to the next
Any fixed, regularly recurring period of 168 consecutive hours (Correct answer)

Correct answer: Any fixed, regularly recurring period of 168 consecutive hours

The FLSA workweek is any fixed, regularly recurring 168-hour (7-day) period established by the employer, which may begin on any day.

Question 37: Which control helps prevent a single payroll employee from both authorizing payroll and disbursing funds?

Dual authorization or segregation of duties (Correct answer)
Positive pay
Electronic funds transfer
Employee self-service

Correct answer: Dual authorization or segregation of duties

Segregation of duties requires that different individuals authorize payroll and actually release the funds, reducing the risk of fraud.

Question 38: An employer has a semiweekly deposit obligation for payroll taxes. For wages paid on Thursday, when is the deposit due?

The following Monday
The following Wednesday (Correct answer)
The following Friday
15 days later

Correct answer: The following Wednesday

For semiweekly depositors, taxes on wages paid Wednesday through Friday are due by the following Wednesday.

Question 39: What is the penalty for a payroll deposit that is 1-5 days late?

15%
10%
2%
5% (Correct answer)

Correct answer: 5%

The IRS imposes a 2% penalty for deposits made 1–5 days late, increasing to 5% for 6–15 days late and 10% for 16+ days late.

Question 40: A non-exempt employee earns $15/hour and a production bonus of $150 in a week when they work 50 hours. What is the correct regular rate of pay for overtime calculation?

$15.00/hour
$17.00/hour
$18.00/hour (Correct answer)
$17.50/hour

Correct answer: $18.00/hour

Regular rate = ($15 × 50 + $150) / 50 = $900 / 50 = $18.00/hour; non-discretionary bonuses are included in the total compensation before dividing by total hours.

Question 41: Using the 'half-time' method for piece-rate overtime, how much additional overtime pay is owed for the 5 overtime hours in the previous question (regular rate = $10.00)?

$50.00
$75.00
$150.00
$25.00 (Correct answer)

Correct answer: $25.00

Under the half-time method, overtime premium = 0.5 × regular rate × OT hours = 0.5 × $10.00 × 5 = $25.00 (piece-rate earnings already include straight-time pay).

Question 42: An employer incorrectly classified a worker as an independent contractor. Under Section 530 relief, what must the employer demonstrate?

That the worker earned less than $600
That the worker signed an independent contractor agreement
That the worker filed a Schedule C
A reasonable basis, substantive consistency, and reporting consistency (Correct answer)

Correct answer: A reasonable basis, substantive consistency, and reporting consistency

Section 530 relief requires the employer to show a reasonable basis for the classification, substantive consistency in treating similar workers, and reporting consistency in filing information returns.

Question 43: What IRS form must an employer file annually to reconcile wages, tips, and tax withholdings reported on Form 941?

Form 940
Form W-2
Form 945
Form W-3 (Correct answer)

Correct answer: Form W-3

Form W-3, the Transmittal of Wage and Tax Statements, is filed with the SSA to reconcile the totals from all W-2 forms issued.

Question 44: Which of the following factors is most critical in determining whether a worker is classified as an employee versus an independent contractor?

The worker's preference for classification
The duration of the working relationship
The degree of control and independence in the work relationship (Correct answer)
The issuance of a Form 1099-NEC at year-end

Correct answer: The degree of control and independence in the work relationship

The primary determinant of worker status is the degree of control the business has over the worker. If the business has the right to control what the worker does and how the job is done, the worker is generally considered an employee.

Question 45: Under the FLSA, an employer and employee agree to pay a salary that covers all hours worked, regardless of how many. This arrangement is known as:

Blended rate method
Fluctuating workweek method (Correct answer)
Piece-rate method
Fixed salary method

Correct answer: Fluctuating workweek method

The fluctuating workweek method allows overtime to be paid at a 0.5 multiplier on the regular rate, which decreases as hours increase, provided the salary is fixed and the agreement is clear.

Question 46: Which of the following is reported in Box 12 of Form W-2 using Code DD?

Dependent care benefits
Deferred compensation
Cost of employer-sponsored health coverage (Correct answer)
Non-qualified plan distributions

Correct answer: Cost of employer-sponsored health coverage

Code DD in Box 12 of Form W-2 reports the cost of employer-sponsored health coverage under an employer-sponsored plan.

Question 47: FUTA credit reduction is triggered when:

Too many employees file for unemployment in one quarter
A state's unemployment trust fund has a surplus
An employer files its FUTA return late
A state has an outstanding federal loan it has not repaid by November 10 (Correct answer)

Correct answer: A state has an outstanding federal loan it has not repaid by November 10

When a state borrows federal funds to pay unemployment benefits and fails to repay the loan by November 10, its employers lose a portion of the 5.4% FUTA credit the following year.

Question 48: Under IRS rules, how long must payroll records generally be retained?

7 years after the tax period
2 years from the date records were created
Indefinitely
4 years after the due date of the related tax (Correct answer)

Correct answer: 4 years after the due date of the related tax

IRS regulations require employers to retain payroll records for at least 4 years after the due date of the related tax or the date the tax was paid, whichever is later.

Question 49: An employee passed away on December 15, 2025. The employer pays the employee's final wages to their estate on January 10, 2026. What is the correct tax treatment for this payment?

Withhold no taxes and report the full amount on Form 1099-MISC. (Correct answer)
Withhold federal income tax only and report on Form 1099-MISC.
Withhold FICA taxes only and report on Form W-2 and Form 1099-MISC.
Withhold federal income tax and FICA taxes, and report on Form W-2.

Correct answer: Withhold no taxes and report the full amount on Form 1099-MISC.

Wages paid to a deceased employee's estate or beneficiary in the calendar year *after* the employee's death are not subject to FICA (Social Security and Medicare), FUTA, or federal income tax withholding. The payment is reported as 'Other Income' in Box 3 of Form 1099-MISC issued to the estate or beneficiary.

Question 50: An employer is determining its federal tax deposit schedule for calendar year 2026. The employer's total tax liability reported on its Forms 941 during the lookback period (July 1, 2024, to June 30, 2025) was $55,000. What is this employer's required deposit schedule for 2026?

Semi-weekly (Correct answer)
Monthly
Quarterly, with Form 941
Annually, with Form 944

Correct answer: Semi-weekly

The IRS determines an employer's deposit schedule based on the total taxes reported during a four-quarter lookback period. If the total tax liability during this period is more than $50,000, the employer is a semi-weekly depositor. Since $55,000 is over the threshold, the employer must follow the semi-weekly schedule.

Question 51: Under IRS rules, how long must employers generally retain payroll records (including W-4 forms and wage records)?

7 years
1 year
2 years
3 years (Correct answer)

Correct answer: 3 years

The IRS requires employers to keep employment tax records for at least 4 years after the tax is due or paid (whichever is later), but the FLSA requires wage records for 3 years — commonly employers retain for 4+ years to satisfy all requirements.

Question 52: Which of the following best describes a 'payroll register'?

A summary of annual W-2 wages for all employees
A log of all IRS tax deposits made by the employer
A ledger of all direct deposit transactions
A detailed record showing each employee's gross pay, deductions, and net pay for a pay period (Correct answer)

Correct answer: A detailed record showing each employee's gross pay, deductions, and net pay for a pay period

The payroll register is the primary payroll document listing earnings, deductions, and net pay for each employee per pay period.

Question 53: What is the primary purpose of a payroll subsidiary ledger?

To maintain individual employee earnings records that support the general ledger payroll totals (Correct answer)
To replace the general ledger for small companies
To record only tax deposit transactions
To track uncashed payroll checks by department

Correct answer: To maintain individual employee earnings records that support the general ledger payroll totals

The payroll subsidiary ledger contains detailed individual employee records whose totals must agree with the payroll-related general ledger control accounts.

Question 54: What is the primary purpose of an employee completing IRS Form W-4, Employee's Withholding Certificate?

To enroll the employee in company-sponsored benefits programs.
To verify the employee's eligibility to work in the United States.
To allow the employer to determine the correct amount of federal income tax to withhold. (Correct answer)
To report the employee's annual wages and taxes withheld to the Social Security Administration.

Correct answer: To allow the employer to determine the correct amount of federal income tax to withhold.

Form W-4 provides the employer with the employee's filing status, number of dependents, and other adjustments needed to calculate the proper amount of federal income tax to withhold from their pay.

Question 55: An employee was hired on March 1, 2023, and their employment was terminated on May 15, 2025. According to USCIS regulations for Form I-9, what is the earliest date the employer can legally destroy this employee's Form I-9?

March 1, 2025
May 15, 2028
March 1, 2026
May 15, 2026 (Correct answer)

Correct answer: May 15, 2026

The rule for Form I-9 retention is to keep the form for three years after the date of hire OR one year after the date of termination, whichever date is later. Three years from the hire date (March 1, 2023) is March 1, 2026. One year from the termination date (May 15, 2025) is May 15, 2026. The later of these two dates is May 15, 2026.

Question 56: Which agency must employers notify when an employee's wages are subject to a child support income withholding order?

The IRS
The state child support enforcement agency (Correct answer)
The Social Security Administration
The Department of Labor

Correct answer: The state child support enforcement agency

Employers must remit withheld child support payments to the state child support enforcement agency, which then disburses funds to the custodial parent.

Question 57: An employee contributes $500 per pay period to a traditional 401(k). For FICA tax purposes, this contribution is:

Subject to Medicare only
Subject to Social Security only
Subject to both Social Security and Medicare taxes (Correct answer)
Excluded from both Social Security and Medicare taxes

Correct answer: Subject to both Social Security and Medicare taxes

Traditional 401(k) elective deferrals reduce federal income tax withholding but are still subject to FICA (Social Security and Medicare) taxes.

Question 58: Federal Administrative Wage Garnishment (AWG) for defaulted student loans is capped at what maximum percentage of disposable pay?

10%
15% (Correct answer)
25%
20%

Correct answer: 15%

Under the Higher Education Act, AWG for defaulted federal student loans cannot exceed 15% of the employee's disposable pay per pay period.

Question 59: Which document is most useful for reconciling the total wages reported on Form 941 to the general ledger?

The prior year W-3 transmittal
The individual employee time cards
The bank statement for the payroll account
The payroll register summary for each quarter (Correct answer)

Correct answer: The payroll register summary for each quarter

The quarterly payroll register summary provides the gross wage totals by quarter that should match the taxable wages reported on Form 941.

Question 60: Which statement about backup withholding is correct?

It applies to payees who have not provided a correct TIN on Form W-9, at a rate of 24% (Correct answer)
It applies only to non-resident aliens
It is imposed at the same rate as the federal supplemental withholding rate
It applies to employees who have not submitted a W-4

Correct answer: It applies to payees who have not provided a correct TIN on Form W-9, at a rate of 24%

Backup withholding at 24% is required when a payee fails to provide a correct taxpayer identification number (TIN) on Form W-9.

Question 61: Which federal law establishes limits on the amount of employee wages that can be garnished and prohibits termination due to a single garnishment?

Consumer Credit Protection Act (CCPA) (Correct answer)
Fair Labor Standards Act (FLSA)
Uniform Commercial Code (UCC)
Employee Retirement Income Security Act (ERISA)

Correct answer: Consumer Credit Protection Act (CCPA)

Title III of the CCPA limits wage garnishment amounts and protects employees from discharge solely because their wages are garnished for one debt.

Question 62: A federal tax levy served on an employer requires withholding from an employee's wages. Unlike a creditor garnishment, an IRS levy:

Can be ignored if a child support order is already in place
Has no CCPA cap and takes priority over most other garnishments (Correct answer)
Must be approved by the employee before withholding
Is limited to 25% of disposable earnings

Correct answer: Has no CCPA cap and takes priority over most other garnishments

An IRS tax levy is not subject to the CCPA percentage limits and generally takes priority, though it must coexist with child support orders depending on timing.

Question 63: How does a Roth 401(k) contribution differ from a traditional 401(k) contribution?

Roth contributions are taken pre-tax with tax-free growth
Roth contributions are taken post-tax with tax-free qualified withdrawals (Correct answer)
Roth contributions are exempt from FICA taxes
Roth contributions have lower annual contribution limits than traditional 401(k)

Correct answer: Roth contributions are taken post-tax with tax-free qualified withdrawals

Roth 401(k) contributions are made with after-tax dollars, meaning they do not reduce current taxable income, but qualified distributions in retirement are completely tax-free.

Question 64: For 2024, the Social Security wage base is $168,600. An employee has already earned $168,600 YTD. How much Social Security tax should be withheld from their next $5,000 paycheck?

$310.00
$0.00 (Correct answer)
$72.50
$155.00

Correct answer: $0.00

Once an employee reaches the Social Security wage base, no further Social Security tax is withheld for the remainder of the year.

Question 65: Which IRS form is used by employees to claim exemption from federal income tax withholding?

Form W-2
Form W-4 (Correct answer)
Form 8809
Form 941

Correct answer: Form W-4

Employees use Form W-4 to inform employers of their withholding allowances, including claiming an exemption from withholding.

Question 66: When an employer has multiple garnishment orders for the same employee, which type generally holds the highest priority?

Child support and alimony orders (Correct answer)
State income tax levies
Creditor garnishments for consumer debt
Federal student loan garnishments

Correct answer: Child support and alimony orders

Child support and alimony orders (Title IV-D orders) are granted priority over other garnishment types under federal law to protect dependent family members.

Question 67: Which federal agency administers the Family and Medical Leave Act (FMLA)?

The Social Security Administration
The IRS
The Department of Labor Wage and Hour Division (Correct answer)
The EEOC

Correct answer: The Department of Labor Wage and Hour Division

The Department of Labor's Wage and Hour Division enforces FMLA, which entitles eligible employees to up to 12 weeks of unpaid, job-protected leave.

Question 68: Health Savings Accounts (HSAs) may only be used by employees enrolled in:

Any employer-sponsored health plan
Medicare or Medicaid
A PPO plan with no deductible
A High Deductible Health Plan (HDHP) (Correct answer)

Correct answer: A High Deductible Health Plan (HDHP)

HSA eligibility requires enrollment in a qualified High Deductible Health Plan (HDHP); employees covered by other health plans generally cannot contribute to an HSA.

Question 69: Which of the following federal income tax withholding methods is best suited for an automated payroll system and is required for employees with annual wages exceeding $100,000?

Percentage method (Correct answer)
Wage-bracket method
Aggregate method
Cumulative method

Correct answer: Percentage method

The percentage method is ideal for automated payroll systems as it uses mathematical formulas rather than tables. It is also required for high-income earners (over approx. $100,000) for whom the wage-bracket tables do not extend.

Question 70: Medicare tax is levied at what rate on all covered wages with no wage base limit?

1.45% (Correct answer)
0.9%
2.9%
6.2%

Correct answer: 1.45%

Employees pay 1.45% for Medicare on all covered wages, with no cap, and employers match that 1.45%.

Question 71: An employee earns $18/hour and works 46 hours in a week. What is their gross pay under FLSA overtime rules?

$856.00
$918.00
$828.00
$882.00 (Correct answer)

Correct answer: $882.00

Regular pay: 40 × $18 = $720; overtime: 6 × $27 (1.5×) = $162; total = $882.

Question 72: A tipped employee's direct cash wage is $2.13/hour. If their tips in a week are insufficient to bring total compensation to the federal minimum wage of $7.25/hour, the employer must:

Pay a tip credit make-up to reach $7.25/hour (Correct answer)
Reduce the employee's scheduled hours
Allow the employee to keep all future tips to compensate
File a tip pooling report with the DOL

Correct answer: Pay a tip credit make-up to reach $7.25/hour

The FLSA tip credit requires the employer to pay the difference if the direct wage plus tips do not equal at least the federal minimum wage.

Question 73: Employers must furnish W-2 forms to employees by what deadline each year?

February 15
January 31 (Correct answer)
March 1
January 15

Correct answer: January 31

Employers must provide W-2 forms to employees (and file copies with the SSA) by January 31 of the year following the calendar year covered.

Question 74: A tipped employee who earns $2.13/hour in direct wages must receive enough tips to bring their total to at least:

$10.00/hour
$8.00/hour
$5.12/hour
$7.25/hour (Correct answer)

Correct answer: $7.25/hour

Under the FLSA, if tips do not bring the employee's total hourly earnings to the federal minimum wage of $7.25/hour, the employer must make up the difference.

Question 75: Which of the following workers is classified as a 'statutory employee' for FICA purposes even if they may be an independent contractor under common law?

A licensed cosmetologist who rents a booth at a salon
A real estate agent paid solely on commission
A full-time life insurance salesperson who sells only for one company (Correct answer)
A freelance software developer working remotely

Correct answer: A full-time life insurance salesperson who sells only for one company

Full-time life insurance salespersons working primarily for one company are statutory employees whose earnings are subject to FICA withholding by the employer.

Question 76: An employee enrolls in their company's 401(k) retirement plan and Section 125 health insurance plan. Which statement correctly describes the tax treatment of these voluntary deductions?

Both deductions are taken after all taxes have been calculated.
The 401(k) is pre-tax, but the health insurance is post-tax.
Both deductions are typically taken on a pre-tax basis, reducing taxable income. (Correct answer)
The health insurance is pre-tax, but the 401(k) is post-tax.

Correct answer: Both deductions are typically taken on a pre-tax basis, reducing taxable income.

Contributions to a traditional 401(k) plan and premiums for a qualified Section 125 health insurance plan are both considered pre-tax deductions. This means they are subtracted from gross pay before federal income tax, and in most cases, Social Security and Medicare taxes are calculated, which lowers the employee's overall taxable income.

Question 77: When a payroll tax deposit is remitted via EFTPS, the journal entry includes a credit to:

Cash (Correct answer)
FICA Taxes Payable
Federal Income Tax Expense
Payroll Tax Expense

Correct answer: Cash

Remitting a tax deposit reduces the company's cash and eliminates the related payroll tax liability.

Question 78: Which IRS form is used to report an employee's annual wages and taxes withheld?

Form W-4
Form W-2 (Correct answer)
Form 1099-NEC
Form 941

Correct answer: Form W-2

Form W-2 (Wage and Tax Statement) reports annual wages, tips, and withheld taxes to both the employee and the SSA/IRS.

Question 79: What is the main advantage of using electronic pay stubs over paper pay stubs?

They are accepted in place of Form W-2 at tax time
They eliminate the need for payroll tax withholding
Electronic pay stubs are required by federal law
They reduce printing costs and allow employees to access pay history at any time (Correct answer)

Correct answer: They reduce printing costs and allow employees to access pay history at any time

Electronic pay stubs lower administrative costs and give employees on-demand access to current and historical earnings and deduction information.

Question 80: Which form is used to report wages paid to a deceased employee's estate in the year following the employee's death?

Form 1099-MISC only (Correct answer)
Form 1099-NEC only
Both Form W-2 and Form 1099-MISC
Form W-2 only

Correct answer: Form 1099-MISC only

Wages paid to a deceased employee's estate in the year after death are reported on Form 1099-MISC (not W-2) because they are not subject to income tax withholding.

Question 81: An employee's paycheck shows gross pay of $4,000, pre-tax deductions of $300, employee FICA of $286.65, FIT withholding of $420, and post-tax deductions of $100. What is the net pay?

$2,893.35 (Correct answer)
$2,993.35
$2,893.65
$3,293.35

Correct answer: $2,893.35

$4,000 − $300 (pre-tax) − $286.65 (FICA) − $420 (FIT) − $100 (post-tax) = $2,893.35.

Question 82: The Medicare Additional Tax of 0.9% applies to wages exceeding which threshold for a single filer in 2024?

$400,000
$250,000
$125,000
$200,000 (Correct answer)

Correct answer: $200,000

Employers must withhold the additional 0.9% Medicare tax on wages over $200,000 paid to any individual employee, regardless of filing status.

Question 83: Which of the following is correctly classified as an involuntary deduction?

Court-ordered creditor wage garnishment (Correct answer)
Health Savings Account (HSA) contribution
403(b) retirement contribution
Dependent care FSA election

Correct answer: Court-ordered creditor wage garnishment

A creditor wage garnishment is an involuntary deduction because it is mandated by a court order and the employee has no choice in the matter.

Question 84: Which of the following are the two components of the Federal Insurance Contributions Act (FICA) tax that are withheld from an employee's wages?

Federal Income Tax and State Income Tax
Medicare and State Unemployment (SUTA)
Social Security and Federal Unemployment (FUTA)
Social Security and Medicare (Correct answer)

Correct answer: Social Security and Medicare

FICA tax is composed of two separate taxes: a 6.2% Social Security tax and a 1.45% Medicare tax. Both the employee and the employer pay these taxes.

Question 85: When processing a federal tax levy (IRS Form 668-W), the amount EXEMPT from levy is determined by:

The number of exemptions claimed on the employee's statement of exemptions and filing status (Correct answer)
The CCPA 25% rule
The employee's gross wages
A flat dollar amount set by Congress

Correct answer: The number of exemptions claimed on the employee's statement of exemptions and filing status

The IRS provides Publication 1494 tables; the exempt amount from a federal tax levy is based on the employee's filing status and number of dependents claimed on the levy exemption statement.

Question 86: Under the Consumer Credit Protection Act (CCPA), the amount of an employee's disposable earnings that can be garnished for an ordinary debt (not child support or taxes) is the lesser of 25% of disposable earnings or the amount by which disposable earnings exceed:

30 times the federal minimum wage. (Correct answer)
40 times the federal minimum wage.
25 times the federal minimum wage.
50 times the federal minimum wage.

Correct answer: 30 times the federal minimum wage.

The CCPA protects a certain amount of an employee's earnings from garnishment. For ordinary garnishments, the maximum amount that can be withheld is the lesser of 25% of disposable earnings or the amount by which the employee's weekly disposable earnings exceed 30 times the current federal minimum wage.

Question 87: According to the Fair Labor Standards Act (FLSA) recordkeeping requirements, for how long must an employer retain an employee's payroll records?

One year
Two years
Three years (Correct answer)
Four years

Correct answer: Three years

The FLSA requires employers to preserve payroll records, collective bargaining agreements, sales, and purchase records for at least three years. Records on which wage computations are based, such as time cards, should be retained for two years.

Question 88: Which of the following scenarios best illustrates an effective use of segregation of duties as a payroll internal control?

The payroll manager has the authority to add new employees, process payroll, and sign paychecks.
One employee is responsible for entering timecard data, while a different employee is responsible for verifying and authorizing the payroll for payment. (Correct answer)
All payroll staff share a single administrative login to the payroll system for efficiency.
The employee who distributes physical paychecks is also responsible for reconciling the payroll bank account.

Correct answer: One employee is responsible for entering timecard data, while a different employee is responsible for verifying and authorizing the payroll for payment.

Segregation of duties is a key internal control designed to prevent fraud and error by ensuring that no single individual has control over all aspects of a financial transaction. Separating the data entry function from the authorization function creates a necessary check and balance in the payroll process.

Question 89: Which of the following describes a 'parallel run' during a payroll system implementation?

Running two payroll systems simultaneously to compare results before fully switching (Correct answer)
Using two separate EINs for the same company
Submitting tax deposits to both federal and state agencies on the same day
Processing payroll on two different pay schedules at the same time

Correct answer: Running two payroll systems simultaneously to compare results before fully switching

A parallel run involves processing payroll in both the old and new systems simultaneously to verify that the new system produces accurate results before cutover.

Question 90: Under a Chapter 13 bankruptcy wage assignment order, the employer is required to:

Stop all garnishments immediately upon receiving notice
Contact the IRS before processing any plan payments
Increase the employee's net pay by eliminating voluntary deductions
Withhold the court-specified amount and remit it to the bankruptcy trustee (Correct answer)

Correct answer: Withhold the court-specified amount and remit it to the bankruptcy trustee

A Chapter 13 wage earner plan directs the employer to withhold the specified plan payment amount from wages and forward it to the bankruptcy trustee for distribution to creditors.

Question 91: An employer wants to offer employees the option to receive their pay via a payroll card. Which of the following is a key compliance consideration?

The IRS requires payroll cards to be reported on Form W-2
Employees must be paid exclusively by payroll card
Employees must have a free option to access their full net pay (Correct answer)
Payroll cards are prohibited in all states

Correct answer: Employees must have a free option to access their full net pay

State and federal consumer protection rules generally require that employees be able to access their full wages without fees, ensuring payroll cards are not a hidden wage reduction.

Question 92: Under the Fair Labor Standards Act (FLSA), which of the following is the primary consideration when determining if a worker is an employee or an independent contractor?

The economic reality of the working relationship, indicating economic dependence or independence. (Correct answer)
The worker's preference for their classification status.
The degree of control exerted by the employer over the worker.
Whether the worker has signed an independent contractor agreement.

Correct answer: The economic reality of the working relationship, indicating economic dependence or independence.

The U.S. Department of Labor and courts use the "economic reality" test to determine worker status under the FLSA. This test analyzes the entire working relationship to see if the worker is economically dependent on the employer for work (making them an employee) or if they are truly in business for themselves (making them an independent contractor). While control is a factor, the overarching principle is the economic dependence of the worker.

Question 93: Under the IRS Percentage Method for 2024, a payroll professional adjusts an employee's wages before applying the withholding tables. What is subtracted first?

The standard deduction
Tentative withholding amount
Total pre-tax deductions only
Adjusted Wage Amount per the Publication 15-T worksheet (Correct answer)

Correct answer: Adjusted Wage Amount per the Publication 15-T worksheet

Publication 15-T's Percentage Method requires computing an Adjusted Wage Amount by accounting for the employee's W-4 elections before applying bracket rates.

Question 94: What is the maximum amount of wages subject to the Social Security (OASDI) tax for 2024?

$176,100
$168,600 (Correct answer)
$147,000
$160,200

Correct answer: $168,600

The Social Security wage base for 2024 is $168,600; wages above this amount are not subject to OASDI tax.

Question 95: A creditor garnishment order requires withholding 25% of an employee's disposable earnings of $700 per week. Federal law limits the garnishment to 25% of disposable earnings OR the amount by which disposable earnings exceed 30× the federal minimum wage ($7.25), whichever is LESS. What is the maximum garnishment?

$117.50
$82.50
$700.00
$175.00 (Correct answer)

Correct answer: $175.00

25% of $700 = $175; disposable earnings exceeding 30 × $7.25 ($217.50) = $700 − $217.50 = $482.50; the lesser amount is $175, so the maximum garnishment is $175.

Question 96: A Health Savings Account (HSA) can only be opened by an employee enrolled in which type of health plan?

HMO
Any employer-sponsored health plan
PPO
High-Deductible Health Plan (HDHP) (Correct answer)

Correct answer: High-Deductible Health Plan (HDHP)

HSA eligibility requires enrollment in a qualified High-Deductible Health Plan (HDHP) as defined by the IRS.

Question 97: An employee is paid $600 weekly salary plus a $150 non-discretionary bonus. Their regular rate for overtime purposes is:

$18.00/hour
$16.25/hour
$15.00/hour
$18.75/hour (Correct answer)

Correct answer: $18.75/hour

Total compensation = $600 + $150 = $750; regular rate = $750 ÷ 40 hours = $18.75/hour.

Question 98: What is the standard quarterly deadline for an employer to file Form 941, Employer's QUARTERLY Federal Tax Return, assuming the due date does not fall on a weekend or holiday?

The 15th day of the month following the end of the quarter.
The first day of the month following the end of the quarter.
The last day of the month following the end of the quarter. (Correct answer)
The 10th business day following the end of the quarter.

Correct answer: The last day of the month following the end of the quarter.

Form 941 is due by the last day of the month that follows the end of the quarter. For example, for the first quarter (January-March), the deadline is April 30th. For the second quarter (April-June), it's July 31st, and so on.

Question 99: Which federal law dictates the general record retention requirement for payroll records, such as employee identifying information and total wages paid each pay period, to be at least three years?

Employee Retirement Income Security Act (ERISA)
Internal Revenue Code (IRC)
Immigration Reform and Control Act (IRCA)
Fair Labor Standards Act (FLSA) (Correct answer)

Correct answer: Fair Labor Standards Act (FLSA)

The Fair Labor Standards Act (FLSA) is the primary federal law governing wage and hour standards, and it mandates that employers must preserve payroll records, collective bargaining agreements, and sales and purchase records for at least three years.

Question 100: What happens to unclaimed wages that an employer holds for an extended period?

They become subject to state unclaimed property (escheat) laws (Correct answer)
They are forfeited to the employer
They must be remitted to the IRS
They are donated to charity

Correct answer: They become subject to state unclaimed property (escheat) laws

Most states require employers to turn over unclaimed wages to the state after a dormancy period under escheat or abandoned property statutes.

Question 101: According to the Fair Labor Standards Act (FLSA) and IRS regulations, what is the minimum period that employers must retain payroll records for each employee after the date of termination?

One year
Seven years
Three years
Four years (Correct answer)

Correct answer: Four years

The IRS and the Fair Labor Standards Act (FLSA) require employers to keep employment tax records for at least four years after the tax becomes due or is paid, whichever is later. This ensures that records are available for audit and to verify compliance with tax and labor laws.

Question 102: Which of the following best describes the matching principle as applied to payroll?

Payroll costs are matched to the fiscal year in which employees were hired
Employer taxes are matched to the quarter in which they are deposited
Wages earned in a period must be expensed in the same period even if paid later (Correct answer)
Wages are expensed only when the check clears the bank

Correct answer: Wages earned in a period must be expensed in the same period even if paid later

The matching principle requires that wage expense be recognized in the same period as the revenue generated by the employee's work.

Question 103: An auditor selects a sample of payroll checks and traces them back to approved timesheets and pay rates. This procedure is known as:

Confirmation
Tracing
Observation
Vouching (Correct answer)

Correct answer: Vouching

Vouching involves working backward from the output (checks) to source documents (timesheets, pay rates) to verify existence and authorization.

Question 104: Under the FLSA, the standard workweek for overtime purposes is defined as:

The calendar month
Any 7 consecutive days designated by the employer (Correct answer)
Any 14-day period
Monday through Sunday only

Correct answer: Any 7 consecutive days designated by the employer

The FLSA defines a workweek as any fixed, regularly recurring period of 168 consecutive hours (7 consecutive 24-hour periods) established by the employer.

Question 105: Employee contributions made through a Section 125 cafeteria plan are exempt from which of the following taxes?

State income tax only
Federal income tax, Social Security, and Medicare taxes (Correct answer)
Federal income tax only
Social Security and Medicare taxes only

Correct answer: Federal income tax, Social Security, and Medicare taxes

Section 125 cafeteria plan deductions reduce wages subject to federal income tax, OASDI (Social Security), and HI (Medicare) taxes, providing a triple tax benefit.

Question 106: Which withholding method allows an employer to calculate federal income tax withholding based on an employee's annualized wages?

Annualized wage withholding method (Correct answer)
Percentage method
Supplemental flat-rate method
Wage bracket method

Correct answer: Annualized wage withholding method

The annualized wage withholding method converts a period's wages to an annual figure, calculates the annual tax, then divides the result by the number of pay periods.

Question 107: Which payroll tax has no wage base limit—it applies to all covered wages?

Social Security (OASDI)
Medicare (HI) (Correct answer)
FUTA
State Unemployment Tax

Correct answer: Medicare (HI)

Medicare (Hospital Insurance) tax of 1.45% applies to all covered wages with no annual wage base cap, unlike Social Security tax.

Question 108: An employer receives a garnishment order for an employee who was terminated last week. What must the employer do?

Notify the issuing court or agency that the individual is no longer employed (Correct answer)
Forward the order to the state unemployment office
Apply the garnishment to the final paycheck only
Hold the order for 90 days in case the employee is rehired

Correct answer: Notify the issuing court or agency that the individual is no longer employed

Upon receiving a garnishment for a terminated employee, the employer must promptly notify the issuing court or agency so enforcement can be redirected appropriately.

Question 109: What is the lookback period used to determine whether an employer is a monthly or semiweekly depositor?

A 12-month period ending June 30 of the prior year (Correct answer)
The current calendar quarter
The prior two calendar quarters
The prior calendar year

Correct answer: A 12-month period ending June 30 of the prior year

The lookback period is the 12-month period ending June 30 of the prior year; employers who reported $50,000 or less in taxes are monthly depositors.

Question 110: Which payroll register column is used to verify the accuracy of the general ledger payroll entry?

Hire date column
Net pay column
Total gross wages column (Correct answer)
Department code column

Correct answer: Total gross wages column

The total gross wages column in the payroll register should agree with the Wages Expense debit in the general ledger journal entry.

Question 111: Supplemental wages, such as bonuses, that are paid separately from regular wages can be taxed for federal purposes using a flat rate. For supplemental wages under $1 million, what is this optional flat tax rate?

15%
22% (Correct answer)
37%
28%

Correct answer: 22%

The IRS permits employers to use an optional flat rate of 22% for supplemental wages (like bonuses, commissions, etc.) that are identified separately from regular pay, provided the total of such wages for the employee does not exceed $1 million during the calendar year.

Question 112: A Flexible Spending Account (FSA) for dependent care allows employees to contribute up to what annual limit (as of current IRS guidelines) per household?

$5,000 (Correct answer)
$10,000
$3,000
$2,750

Correct answer: $5,000

The IRS allows up to $5,000 per household ($2,500 if married filing separately) in pre-tax contributions to a Dependent Care FSA annually.

Question 113: Which IRS publication provides the withholding tables employers use to calculate federal income tax withholding?

Publication 15-B
Publication 505
Publication 15 (Circular E) (Correct answer)
Publication 946

Correct answer: Publication 15 (Circular E)

IRS Publication 15, also known as Circular E (Employer's Tax Guide), contains the federal income tax withholding tables and employer instructions.

Question 114: Which of the following is a key characteristic of a voluntary wage assignment?

It is mandated by a court order.
It takes priority over all court-ordered garnishments.
The employee can typically revoke it at any time. (Correct answer)
The CCPA's percentage limits always apply.

Correct answer: The employee can typically revoke it at any time.

A voluntary wage assignment is an agreement between an employee and a creditor, and unlike a court-ordered garnishment, the employee can usually revoke the authorization in writing at any time. It is not court-ordered, and the CCPA's protections on withholding limits do not apply to these voluntary arrangements.

Question 115: A non-exempt employee works 44 hours in a workweek at $18/hour. What is their total gross pay?

$828.00 (Correct answer)
$738.00
$810.00
$792.00

Correct answer: $828.00

Regular pay = 40 × $18 = $720; overtime = 4 × $27 (1.5 × $18) = $108; total = $828.00.

Question 116: When an employee works in multiple states, how does the payroll department determine which state's income tax to withhold?

By analyzing reciprocity agreements and state nexus rules (Correct answer)
Only the employee's home state rules apply
Only the state where the company is headquartered controls withholding
Federal guidelines override all state withholding rules

Correct answer: By analyzing reciprocity agreements and state nexus rules

Multi-state tax situations require analysis of interstate reciprocity agreements and nexus rules to determine the correct withholding obligations in each state.

Question 117: How many hours a 14- to 15-year-old may work each week while school is in session?

12
20
11
15 (Correct answer)

Correct answer: 15

The Fair Labor Standards Act (FLSA) sets specific limits on the hours 14- and 15-year-olds can work to protect their education and well-being. During weeks when school is in session, they are generally limited to working a maximum of 3 hours on a school day and no more than 18 hours per week. This regulation ensures that work does not interfere with their schooling.

Question 118: Under the FLSA, what is the current federal minimum wage?

$10.00 per hour
$8.00 per hour
$6.55 per hour
$7.25 per hour (Correct answer)

Correct answer: $7.25 per hour

The federal minimum wage has been $7.25 per hour since July 24, 2009.

Question 119: A company hires a graphic designer to create a new company logo. The designer uses their own computer and software, sets their own work hours, and is paid a flat fee for the completed project. The designer is also free to work for other clients simultaneously. Under the FLSA's economic reality test, which factor most strongly suggests the designer is an independent contractor?

The relationship is for a single, short-term project.
The company provides a detailed brief of what the logo should look like.
The designer's opportunity for profit or loss based on their managerial skill. (Correct answer)
The work performed is integral to the company's marketing efforts.

Correct answer: The designer's opportunity for profit or loss based on their managerial skill.

A key factor in the economic reality test is the worker's opportunity for profit or loss depending on their managerial skill. In this scenario, the designer can increase profit by working efficiently and taking on other clients. They also bear the risk of loss if their expenses exceed the flat fee. This business-like independence, along with using their own tools and controlling their schedule, points toward an independent contractor status.

Question 120: An employee's disposable earnings are $500 per week. The federal minimum wage is $7.25/hour. What is the maximum creditor garnishment amount?

$217.50
$282.50
$100.00
$125.00 (Correct answer)

Correct answer: $125.00

The lesser of 25% of $500 ($125) or the amount above 30x $7.25 ($500 - $217.50 = $282.50) is $125, which is the maximum garnishable amount.

Question 121: A new employee fails to submit a Form W-4. What withholding rate must the employer apply?

The single filer rate at standard withholding (Correct answer)
Zero withholding
10% flat rate
The highest marginal tax rate

Correct answer: The single filer rate at standard withholding

If an employee does not provide a Form W-4, the employer must withhold as if the employee is single with no adjustments.

Question 122: An employer pays all employees a flat daily rate regardless of hours worked. For overtime compliance under the FLSA, the regular rate is computed as:

The daily rate divided by 8 hours
The total daily earnings divided by all hours actually worked that day (Correct answer)
The daily rate multiplied by 5, divided by 40
Half the daily rate for any day with over 8 hours

Correct answer: The total daily earnings divided by all hours actually worked that day

When workers are paid a flat daily rate, the regular rate for any workday is the daily earnings divided by the actual number of hours worked that day.

Question 123: During year-end reconciliation, which two data sources are most commonly compared to verify payroll accuracy?

Employee time sheets versus direct deposit transaction records
Quarterly Form 941 totals versus annual payroll register totals (Correct answer)
Employee handbook policies versus HR department records
State W-2 filings versus federal W-2 filings

Correct answer: Quarterly Form 941 totals versus annual payroll register totals

The sum of wages and taxes reported on the four quarterly Form 941s should equal the annual payroll register totals and match the W-2 summary on Form W-3.

Question 124: Form 941 (Employer's Quarterly Federal Tax Return) is generally due:

January 31 for the entire year
Within 10 days of the quarter end
On the last day of the quarter
By the last day of the month following the end of the quarter (Correct answer)

Correct answer: By the last day of the month following the end of the quarter

Form 941 is due by the last day of the month following the end of each quarter (April 30, July 31, October 31, January 31), with a 10-day extension if deposits are timely.

Question 125: Which federal law requires employers to report new hires to a state agency, primarily to assist with child support enforcement?

PRWORA (Personal Responsibility and Work Opportunity Reconciliation Act) (Correct answer)
FMLA
ERISA
COBRA

Correct answer: PRWORA (Personal Responsibility and Work Opportunity Reconciliation Act)

PRWORA of 1996 mandates that employers report newly hired and rehired employees to state new hire registries to help locate parents for child support purposes.

Question 126: What is the primary purpose of year-end payroll reconciliation?

To verify that payroll register totals match tax return and W-2 amounts (Correct answer)
To calculate total overtime hours worked during the year
To recalculate employee vacation and PTO accruals
To update employee direct deposit accounts for the new year

Correct answer: To verify that payroll register totals match tax return and W-2 amounts

Year-end reconciliation confirms that wages and taxes on quarterly Form 941s and annual W-2s agree with the company's payroll register totals.

Question 127: A payroll accrual entry is typically necessary when:

Employees are paid weekly
Payroll is processed on the last day of the month
All employees use direct deposit
The pay period ends before the accounting period closes (Correct answer)

Correct answer: The pay period ends before the accounting period closes

An accrual is needed when a pay period straddles two accounting periods so that wages earned but unpaid are recognized in the correct period.

Question 128: How are State Unemployment Tax Act (SUTA) taxes predominantly funded?

Primarily by employer contributions, though a few states also require employee contributions. (Correct answer)
Equally by both employee and employer contributions.
By employee pre-tax payroll deductions only.
Entirely by the federal government through FUTA tax credits.

Correct answer: Primarily by employer contributions, though a few states also require employee contributions.

SUTA, which funds state unemployment benefits, is an employer-paid tax in the vast majority of states. Only a few states (Alaska, New Jersey, and Pennsylvania) also require employees to contribute.

Question 129: Which form is furnished to each full-time employee to report health coverage offers under the Affordable Care Act?

Form W-2 Box 12
Form 1094-C
Form 1095-C (Correct answer)
Form 5500

Correct answer: Form 1095-C

Form 1095-C (Employer-Provided Health Insurance Offer and Coverage) is provided to each full-time employee by an applicable large employer to document the health coverage that was offered.

Question 130: Which of the following benefits is excluded from an employee's gross income under IRC Section 129?

Dependent care assistance up to $5,000 (Correct answer)
Personal use of a company car
Cash bonuses
Group-term life insurance over $50,000

Correct answer: Dependent care assistance up to $5,000

IRC Section 129 excludes employer-provided dependent care assistance up to $5,000 ($2,500 if married filing separately) from an employee's gross income.

Question 131: A non-exempt employee works 45 hours in a single workweek. According to the FLSA, how must the employer calculate the employee's pay for that week?

Pay 40 hours at the regular rate and 5 hours at a rate negotiated with the employee.
Provide 5 hours of compensatory time off in a future week.
Pay the employee their regular rate for all 45 hours.
Pay 40 hours at the regular rate and 5 hours at 1.5 times the regular rate. (Correct answer)

Correct answer: Pay 40 hours at the regular rate and 5 hours at 1.5 times the regular rate.

The FLSA requires that non-exempt employees be paid overtime for any hours worked over 40 in a workweek. The overtime rate must be at least one and one-half times their regular rate of pay. Therefore, the 5 hours worked beyond the standard 40-hour week must be compensated at this premium rate.

Question 132: After computing gross pay and subtracting all pre-tax deductions, which taxes are deducted in the correct order to arrive at net pay?

Employee FICA and FIT simultaneously → State/Local taxes → voluntary deductions → garnishments (Correct answer)
FIT → State IT → Local IT → Employee FICA
Employee FICA → FIT → State IT → Local IT
Garnishments → FICA → FIT → post-tax deductions

Correct answer: Employee FICA and FIT simultaneously → State/Local taxes → voluntary deductions → garnishments

By convention, mandatory taxes (FICA and FIT) are computed on gross taxable wages and withheld together, followed by state/local taxes, then post-tax voluntary deductions, and finally garnishments in priority order.

Question 133: Which payroll processing method requires the employer to manage all payroll functions internally without outside assistance?

Professional Employer Organization (PEO)
In-house (manual) payroll (Correct answer)
Outsourced payroll
Payroll service bureau

Correct answer: In-house (manual) payroll

In-house or manual payroll means the employer handles all calculations, tax filings, and record-keeping using internal staff and systems.

Question 134: Which deposit schedule applies to a new employer with no lookback period history?

Semi-weekly depositor
Monthly depositor (Correct answer)
Annual depositor
Next-day depositor

Correct answer: Monthly depositor

New employers with no lookback period history are automatically classified as monthly depositors.

Question 135: Under the accrual basis of accounting, when are wages recognized as an expense?

When the paycheck is issued
When they are earned by the employee (Correct answer)
When cash leaves the bank account
When the W-2 is filed

Correct answer: When they are earned by the employee

Accrual accounting requires expenses to be recognized in the period they are incurred, which is when the employee earns the wages.

Question 136: What is the annual deadline by which employers must furnish Form W-2, Wage and Tax Statement, to their employees for the preceding calendar year?

January 31 (Correct answer)
March 15
April 15
February 28

Correct answer: January 31

Employers are required to provide employees with their Form W-2 by January 31 of the year following the calendar year of wages earned. This deadline also applies to filing the forms with the Social Security Administration. If January 31 falls on a weekend or holiday, the deadline moves to the next business day.

Question 137: Which of the following employees is most likely EXEMPT from FLSA overtime under the executive exemption?

A senior technician earning $65,000/year with no supervisory duties
A department manager earning $70,000/year who regularly directs 10 employees and has authority to hire and fire (Correct answer)
A shift supervisor who earns $35,000/year and occasionally directs two employees
A team lead earning $45,000/year who has no authority to discipline employees

Correct answer: A department manager earning $70,000/year who regularly directs 10 employees and has authority to hire and fire

The executive exemption requires a salary of at least $684/week, primary duty of management, directing 2+ employees, and authority over employment status.

Question 138: What is the key difference between a Flexible Spending Account (FSA) and a Health Savings Account (HSA)?

HSA funds roll over year to year while FSA funds generally do not (Correct answer)
FSAs require HDHP enrollment
HSAs are employer-funded only
FSAs allow higher contribution limits

Correct answer: HSA funds roll over year to year while FSA funds generally do not

Unlike FSAs which have a 'use-it-or-lose-it' rule, HSA balances roll over indefinitely and can accumulate long-term.

Question 139: Which of the following is a red flag that an internal payroll audit should investigate further?

Year-end W-2s mailed within the IRS deadline
An employee's W-4 updated after a life event
Payroll processed on the same day each pay period
Multiple employees with direct deposits to the same bank account (Correct answer)

Correct answer: Multiple employees with direct deposits to the same bank account

Multiple employees sharing one bank account is a strong indicator of ghost employee fraud or wage diversion.

Question 140: An employee's disposable earnings are $300 per week. The federal minimum wage is $7.25/hour. What is the maximum creditor garnishment amount?

$217.50
$75.00 (Correct answer)
$82.50
$150.00

Correct answer: $75.00

25% of $300 = $75; amount above 30x $7.25 = $300 - $217.50 = $82.50; the lesser figure of $75 is the maximum that can be garnished.

Question 141: An employee receives a $2,000 bonus paid separately from regular wages. Using the flat supplemental rate, how much federal income tax should be withheld?

$220.00
$440.00 (Correct answer)
$500.00
$340.00

Correct answer: $440.00

The optional flat supplemental withholding rate is 22%; $2,000 × 22% = $440.

Question 142: A semi-monthly pay schedule results in how many pay periods per year?

12
26
52
24 (Correct answer)

Correct answer: 24

Semi-monthly means twice per month (e.g., the 1st and 15th), totaling 24 pay periods per year.

Question 143: An employee earns $3,200 semimonthly. What is their annualized salary?

$38,400
$83,200
$76,800 (Correct answer)
$72,000

Correct answer: $76,800

Semimonthly pay periods = 24 per year; $3,200 × 24 = $76,800.

Question 144: Which of the following correctly describes the 'catch-up' FICA deposit rule for large employers?

Employers may deposit on a quarterly basis if cumulative liability is under $2,500
Employers with $1,000+ undeposited liability must deposit the next banking day
Monthly depositors with under $500 liability may pay with the return
If total undeposited liability is under $100, it may be carried over to the next period (Correct answer)

Correct answer: If total undeposited liability is under $100, it may be carried over to the next period

The de minimis rule allows employers to carry over undeposited tax of less than $100 to the next period rather than making a deposit.

Question 145: When an employee's garnishment payment is remitted to the creditor, the journal entry includes a:

Debit to Wages Payable and credit to Garnishments Payable
Debit to Garnishments Payable and credit to Cash (Correct answer)
Debit to Wages Expense and credit to Cash
Debit to Cash and credit to Wages Expense

Correct answer: Debit to Garnishments Payable and credit to Cash

Remitting a garnishment reduces the liability (Garnishments Payable) and reduces the asset Cash.

Question 146: An employee earns $52,000 annually. If paid biweekly, what is the gross pay per pay period?

$1,000.00
$4,333.33
$2,166.67
$2,000.00 (Correct answer)

Correct answer: $2,000.00

Biweekly means 26 pay periods per year; $52,000 ÷ 26 = $2,000.00 per pay period.

Question 147: Which of the following actions by an employer constitutes FLSA retaliation?

Requiring time cards to be submitted by the end of each shift
Scheduling a non-exempt employee for fewer hours after a busy season ends
Moving a salaried employee to hourly pay for administrative convenience
Terminating an employee who filed a complaint about unpaid overtime (Correct answer)

Correct answer: Terminating an employee who filed a complaint about unpaid overtime

The FLSA prohibits employers from discharging or discriminating against any employee for filing a complaint or participating in a proceeding under the Act.

Question 148: A SIMPLE IRA plan may be established by employers with no more than how many employees?

50
25
100 (Correct answer)
250

Correct answer: 100

SIMPLE IRA plans are available to employers with 100 or fewer employees who earned at least $5,000 in the prior year.

Question 149: Which tax applies an additional 0.9% Medicare surtax on high earners?

Self-Employment Contributions Act tax
Net Investment Income Tax
Alternative Minimum Tax
Additional Medicare Tax (Correct answer)

Correct answer: Additional Medicare Tax

The Additional Medicare Tax of 0.9% applies to wages over $200,000 (single) or $250,000 (married filing jointly) and must be withheld by employers once wages exceed $200,000.

Question 150: An employee is paid biweekly and has a Section 125 health insurance premium of $150 per pay period. How does this affect their taxable wages for FIT withholding?

Reduces taxable wages by $150 (Correct answer)
Reduces taxable wages by $300
Increases taxable wages by $150
No effect — premiums are post-tax

Correct answer: Reduces taxable wages by $150

Section 125 (cafeteria plan) premiums are excluded from federal income taxable wages, reducing the withholding base by the premium amount each pay period.

Question 151: Which of the following correctly describes how commissions are treated for overtime calculation under the FLSA?

Commissions earned in the workweek are included in the regular rate (Correct answer)
Commissions replace the regular rate entirely
Commissions are paid separately and exempt from overtime
Commissions are always excluded from the regular rate

Correct answer: Commissions earned in the workweek are included in the regular rate

Non-discretionary commissions earned in the workweek must be included in the regular rate of pay when calculating overtime under the FLSA.

Fundamental Payroll Certification Exam

The Fundamental Payroll Certification (FPC) Exam tests foundational knowledge in payroll concepts, calculations, tax compliance, accounting, and systems administration as defined by the American Payroll Association.

150

Questions

180 min

Time Limit

70%

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