Fundamental Payroll Certification Fundamental Payroll Year-End Processing and Reporting 2 — Questions and Answers
Question 1: What is the primary purpose of year-end payroll reconciliation?
- To calculate total overtime hours worked during the year
- To verify that payroll register totals match tax return and W-2 amounts (Correct answer)
- 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 2: Which form is used to correct errors on a previously issued and filed Form W-2?
- Form W-2c (Correct answer)
- Form W-2R
- Form 941-X
- Form 1099-C
Correct answer: Form W-2c
Form W-2c (Corrected Wage and Tax Statement) is the designated IRS form for correcting errors on a previously issued W-2.
Question 3: What does Box 1 on Form W-2 represent?
- Social Security wages before pre-tax deductions
- Medicare wages and tips including all pre-tax benefits
- Wages, tips, and other compensation subject to federal income tax withholding (Correct answer)
- State wages and tips as reported to state agencies
Correct answer: Wages, tips, and other compensation subject to federal income tax withholding
Box 1 reports federal taxable wages, tips, and other compensation after reducing gross pay by pre-tax deductions such as 401(k) contributions and pre-tax health insurance premiums.
Question 4: What is 'imputed income' in the context of year-end payroll processing?
- Income earned by an employee from a second employer during the year
- The taxable fair market value of non-cash fringe benefits added to an employee's gross wages (Correct answer)
- Wages deferred through pre-tax benefit contributions
- Overtime pay calculated and paid during the year-end bonus review
Correct answer: The taxable fair market value of non-cash fringe benefits added to an employee's gross wages
Imputed income is the fair market value of non-cash benefits — such as employer-provided group term life insurance over $50,000 — that must be included in an employee's taxable wages at year-end.
Question 5: During year-end reconciliation, which two data sources are most commonly compared to verify payroll accuracy?
- Employee handbook policies versus HR department records
- Quarterly Form 941 totals versus annual payroll register totals (Correct answer)
- State W-2 filings versus federal W-2 filings
- Employee time sheets versus direct deposit transaction records
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 6: How are taxable fringe benefits generally reported on Form W-2?
- They are always excluded from all W-2 boxes as non-taxable
- Only non-taxable fringe benefits are included in Box 1 wages
- Taxable fringe benefits are included in Box 1 wages and also appear in Box 12 when a specific code applies (Correct answer)
- All fringe benefits regardless of taxability are reported exclusively in Box 14
Correct answer: Taxable fringe benefits are included in Box 1 wages and also appear in Box 12 when a specific code applies
Taxable fringe benefits increase Box 1 wages, and certain benefits are also separately identified using Box 12 codes — for example, Code DD reports employer-sponsored health coverage costs.
Question 7: What does a year-end payroll checklist primarily help payroll professionals ensure?
- Employee performance reviews are completed and documented before year-end
- All payroll year-end tasks are completed accurately and by required deadlines (Correct answer)
- PTO and vacation balances are properly carried over into the new calendar year
- Annual bonus amounts are correctly calculated and approved for each employee
Correct answer: All payroll year-end tasks are completed accurately and by required deadlines
A year-end payroll checklist is a procedural control tool ensuring that critical tasks — such as reconciliation, W-2 preparation, fringe benefit reporting, and tax filings — are completed accurately and on time.
Fundamental Payroll Certification Fundamental Payroll Year-End Processing and Reporting 2
What is the primary purpose of year-end payroll reconciliation?