Payroll Processing & Administration Flashcards

Which IRS form is used to report compensation paid to independent contractors who are paid $600 or more during the tax year?

Answer: Form 1099-NEC

Form 1099-NEC (Nonemployee Compensation) must be issued to independent contractors paid $600 or more, replacing the former Box 7 of Form 1099-MISC.

An employer's total FUTA tax liability is $700 for the year. At what point must this amount be deposited?

Answer: When the cumulative FUTA liability exceeds $500 at quarter-end

FUTA deposits are required when the employer's accumulated FUTA tax liability exceeds $500 at the end of any calendar quarter; if it never exceeds $500, it can be paid with the annual Form 940.

Which concept describes the illegal practice of classifying workers as independent contractors to avoid payroll tax obligations when they function as employees?

Answer: Worker misclassification

Worker misclassification occurs when employers incorrectly label employees as independent contractors, improperly shifting tax and benefit burdens and exposing the employer to back taxes and penalties.

Under the IRS rules, which of the following is a key factor in the 'common law' test used to determine employee versus independent contractor status?

Answer: The degree of behavioral control the business has over how work is performed

The IRS common-law test examines behavioral control (how work is done), financial control (business aspects), and type of relationship; behavioral control is a primary factor.

What is the purpose of a payroll register?

Answer: To summarize gross pay, deductions, and net pay for all employees for each pay period

A payroll register is a detailed record that lists each employee's gross pay, all deductions (taxes, benefits, garnishments), and net pay for a given pay period, serving as the primary payroll accounting document.

Which journal entry correctly records the employer's matching FICA taxes for Social Security and Medicare?

Answer: Debit: FICA Tax Expense; Credit: FICA Taxes Payable

The employer's share of FICA taxes is recorded by debiting FICA Tax Expense (increasing the expense) and crediting FICA Taxes Payable (recording the liability until remitted).

How long must employers generally retain payroll records such as time cards, wage rates, and tax withholding information under federal law?

Answer: 3 years

The FLSA requires employers to keep payroll records for at least 3 years, while supporting records such as time cards must be kept for 2 years; many advisors recommend 3 years for all records.