Xero Certified Advisor Xero Payroll Management 2 — Questions and Answers
Question 1: When processing payroll in Xero (US), which federal payroll tax is split equally between the employer and the employee?
- Federal income tax
- FUTA (Federal Unemployment Tax Act)
- FICA (Federal Insurance Contributions Act) — Social Security and Medicare (Correct answer)
- State income tax
Correct answer: FICA (Federal Insurance Contributions Act) — Social Security and Medicare
FICA taxes — Social Security (6.2%) and Medicare (1.45%) — are each paid half by the employer and half by the employee, totaling 15.3% combined.
Question 2: What is the employee portion of the Social Security tax rate for US payroll?
- 1.45%
- 6.2% (Correct answer)
- 7.65%
- 12.4%
Correct answer: 6.2%
The employee's Social Security tax rate is 6.2% of wages up to the annual wage base limit, with the employer also contributing a matching 6.2%.
Question 3: In Xero Payroll, what does 'post payroll' do after a payroll run is approved?
- Sends payslips to employees via email
- Creates journal entries in Xero's general ledger (Correct answer)
- Submits payroll tax payments directly to the IRS
- Generates W-2 forms for all employees
Correct answer: Creates journal entries in Xero's general ledger
Posting payroll creates the corresponding journal entries in Xero's general ledger, recording wages expense, tax liabilities, and net pay payable.
Question 4: Which form must US employers file quarterly to report federal payroll taxes withheld and employer contributions?
- Form W-2
- Form 940
- Form 941 (Correct answer)
- Form 1099-NEC
Correct answer: Form 941
Form 941 (Employer's Quarterly Federal Tax Return) is filed each quarter to report federal income tax, Social Security, and Medicare taxes withheld from employee wages.
Question 5: What is FUTA, and who is solely responsible for paying it?
- A federal tax withheld equally from both employer and employee
- A federal unemployment tax paid entirely by the employer (Correct answer)
- A state unemployment insurance tax shared between employer and employee
- A Medicare surcharge for high-earning employees
Correct answer: A federal unemployment tax paid entirely by the employer
FUTA (Federal Unemployment Tax Act) is a federal unemployment tax paid entirely by the employer — it is never withheld from employee wages.
Question 6: In Xero Payroll, what is the purpose of a 'deduction' on an employee's pay?
- To add additional compensation to the employee's gross earnings
- To reduce the employee's gross pay for items like health insurance premiums or 401(k) contributions (Correct answer)
- To record the employer's share of payroll tax expenses
- To adjust the employee's assigned pay schedule
Correct answer: To reduce the employee's gross pay for items like health insurance premiums or 401(k) contributions
Deductions reduce an employee's gross pay and can be pre-tax (such as 401k or health insurance premiums) or post-tax, directly affecting the employee's net take-home pay.
Question 7: In Xero Payroll, what is the difference between gross pay and net pay?
- Gross pay is the hourly rate; net pay is the annual equivalent
- Gross pay is total earnings before deductions and taxes; net pay is the amount the employee actually receives (Correct answer)
- Gross pay includes employer-paid benefits; net pay reflects base wages only
- Gross pay applies to salaried employees; net pay applies to hourly workers
Correct answer: Gross pay is total earnings before deductions and taxes; net pay is the amount the employee actually receives
Gross pay is the total compensation earned before any withholdings, while net pay is the take-home amount remaining after all taxes and deductions are subtracted.
Xero Certified Advisor Xero Payroll Management 2
When processing payroll in Xero (US), which federal payroll tax is split equally between the employer and the employee?