Payroll Essentials: Key Concepts and Regulations | Exams Business Fundamentals

Certified Payroll Professional Exam (CPP) Part 1

Payroll Concept Workers Status correct answer Form SS8 is the IRS determination of EE or IC

status. Reasonal Basis Test aka Safe Harbor Rules Sec 530-Alls ee to be treated like a IC for

specific reasons such as a court order, IRS audit results, Attorney or CPA advisement, or long

standing industry standard for that job role. Common Law Test- see chart for example EE is

required to comply with ER instructions about when where and how to work. IC sets own hours

determines own sequence of work. Form W9 request from ER on IC to supply FEIN or SSN with

Company Name. Backup Withholding- Some IC are required to withhold 24% of earnings this is

reported on Form 945. Statutory ees- not ees under the common law test but are treated like

ees for tax purposes. Ex. Agent or commission drivers, Full time life insurance sales people,

home workers, and traveling salespersons. Statutory Non-EEs- Qualify as ees nder common law

test, but they are treated as IC. No taxes w/h from pay. Ex: Real Estate agents, direct sellers.

Income must be directly related to sales, Income reported on 1099 Box 7 Non-EE comp.

FLSA correct answer FLSA - Sets min. wage.requires record keeping, places restrictions on types

of work minors can do. It DOES NOT govern vacation, sick, jury duty, holiday, lunch breaks. Freq

of pay or restrictions on hours required to work. This area is handled by state law. Federal Min

Wage = 7.25 hour. OT HOURS-- everything over 40 hours in the work week. Exempt ees must be

paid at least $455 a week salary or fee basis. Primary duties must consist of performing non

manual or office work related to the general business operations. OR Permiting work that is

directly related to academic instruction. Tips- 2.13/HR hourly rate and tips must meet min wage

requirement in fed/state. Must also receive $30 in tips per month. TIP CREDIT- 5.12 allowed

credit by the employer when tips are at least 5.12/hr. REG RATE OF PAY- calculation is Reg rate

of pay=total reg pay divided by # of hours worked. Fluctuating Work Week- Change of schedule

based on business need. ok as long as ees are paid for OT. Fixed wkly salary is high enough that

they dont fall below min wage. Comp Time Private Sector- Allowed as long as the time off is in

the same pay period. 11/2 hours given for ever hour of OT worked. State and/or Gov workers

can have the comp time rather than OT pay if; the EE agreees to it, ees are given reasonable

time to use it, Can accumulate 240 hours of comp time OR 160 hours of OT. Above must be

paid. As for public safety ees, they can have a max comp time of 480 and 320 OT hrs comp.

CHANGING WORK WEEK- Is whn the workweek changes from M-SUN to SUN-SAT. OT is paid on

the greater of the 2. WHITE COLLAR are: administrative, executives, professionals, learned

professionals, creative professionals, computer professionals, outside sales. WORK WEEK-

determines the 7 consecutive 24 hour period and when OT is calculated. COMPENSABLE TIME-

Non Ex. ees must be

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Certified Payroll Professional Exam (CPP) Part 1

Payroll Concept Workers Status correct answer Form SS8 is the IRS determination of EE or IC status. Reasonal Basis Test aka Safe Harbor Rules Sec 530-Alls ee to be treated like a IC for specific reasons such as a court order, IRS audit results, Attorney or CPA advisement, or long standing industry standard for that job role. Common Law Test- see chart for example EE is required to comply with ER instructions about when where and how to work. IC sets own hours determines own sequence of work. Form W9 request from ER on IC to supply FEIN or SSN with Company Name. Backup Withholding- Some IC are required to withhold 24% of earnings this is reported on Form 945. Statutory ees- not ees under the common law test but are treated like ees for tax purposes. Ex. Agent or commission drivers, Full time life insurance sales people, home workers, and traveling salespersons. Statutory Non-EEs- Qualify as ees nder common law test, but they are treated as IC. No taxes w/h from pay. Ex: Real Estate agents, direct sellers. Income must be directly related to sales, Income reported on 1099 Box 7 Non-EE comp. FLSA correct answer FLSA - Sets min. wage.requires record keeping, places restrictions on types of work minors can do. It DOES NOT govern vacation, sick, jury duty, holiday, lunch breaks. Freq of pay or restrictions on hours required to work. This area is handled by state law. Federal Min Wage = 7.25 hour. OT HOURS-- everything over 40 hours in the work week. Exempt ees must be paid at least $455 a week salary or fee basis. Primary duties must consist of performing non manual or office work related to the general business operations. OR Permiting work that is directly related to academic instruction. Tips- 2.13/HR hourly rate and tips must meet min wage requirement in fed/state. Must also receive $30 in tips per month. TIP CREDIT- 5.12 allowed credit by the employer when tips are at least 5.12/hr. REG RATE OF PAY- calculation is Reg rate of pay=total reg pay divided by # of hours worked. Fluctuating Work Week- Change of schedule based on business need. ok as long as ees are paid for OT. Fixed wkly salary is high enough that they dont fall below min wage. Comp Time Private Sector- Allowed as long as the time off is in the same pay period. 11/2 hours given for ever hour of OT worked. State and/or Gov workers can have the comp time rather than OT pay if; the EE agreees to it, ees are given reasonable time to use it, Can accumulate 240 hours of comp time OR 160 hours of OT. Above must be paid. As for public safety ees, they can have a max comp time of 480 and 320 OT hrs comp. CHANGING WORK WEEK- Is whn the workweek changes from M-SUN to SUN-SAT. OT is paid on the greater of the 2. WHITE COLLAR are: administrative, executives, professionals, learned professionals, creative professionals, computer professionals, outside sales. WORK WEEK- determines the 7 consecutive 24 hour period and when OT is calculated. COMPENSABLE TIME- Non Ex. ees must be

Employement Taxes correct answer Exams administered from September 15, 2018 through September 13, 2019, feature questions based on federal laws and regulations in effect as of January 1, 2018. FIT all employees are subject to FIT. ER are responsible to pay. Taxable wages is all comp. not specifically excluded from taxable income. Fringe benefits are usualy taxable. SEE WAGE BRACKET METHOD and PERCENTAGE METHOD tables. See SUPPLEMENTAL TAX Methods wage bracket and aggregate. FUTA WAGE BASE. EEs only are subject to FUTA. Rate is 6% but credit is 5.4% leaving the tax at .6% pay on the first 7,000 in taxable wages. Exclusions to FUTA are sick or disabilty paid more than 6 months after the last month of employ. Workers comp pay, payments to Cafe 124 plan, non cash payments, qualified moving expenses, dealth or disabily payments, edu reimb., GTL, meals and lodging, wages paid after death, tips not reported to ER. SS Wage base is 128,400 and is 6.2% of earnings. ER pay match. MEDICARE- There is no limit on the amount of wages subject to the other portion of the FICA tax, the 1.45% Medicare tax additional .9% must be w/h from the ee for taxable earnings over 200,000. ER does not match. Backup withholding requirements- Backup Withholding Rate Drops in 2018. As a result of the recently passed tax reform bill, the Tax Cuts and Jobs Act, the backup withholding rate will be reduced from 28% to 24% effective January 1, 2018.Under Code § 3406, payors are required to deduct backup withholding on certain non-wage payments made to payees for whom an information return was filed with either a missing or incorrect TIN. The backup withholding rate under §3406(a)(1) is the fourth lowest rate of tax under §1(c), tax rates for single individuals. The Railroad Retirement System Railroad employment taxes consist of employer and employee taxes. The employer and employees pay cer EE Benefits correct answer Taxable benefits- subject to FIT and all other emp taxes. Such as bonuses, commissions, personal use of company vehicle, severance pay, ER paid parking greater than $245/mo., ER paid commuter fees in excess of $245/mo., GTL over 50,000 and Tips. Non Taxable benefits are company vehicle used for business use only, GTL under 50,000, Med, Dental and health plans, Qualified moving expenses. Qualified Plans- are retirement plans, awards. Qualified Transportion- excludable from income if the vehicle is provided by ER. Transit passes reimb. by ER, Parking on or near work premises. Qualified Moving expenses- Moving expenses paid or reimbursed are non-taxable fringes if the moving expenses qualify for a deduction AND the EE did not deduct them in a previous year. To be excluded from income the expsense must 1. Distance Test- New workplace must be 50 miles farther from the EE old residence. 2. Time Test during a 12 mo period immdiately following the move the ER must expect teh EE to work FT for at least 39 wks. at the new workplace. If these 2 tests FAIL then the expenses are taxable. 2 types of deductible moving expenses. !- Transportation of household goods, 2- Expenses of traveling from old home to new home. Not meals. Imputing Fringe Benefits- Couldnt find data. Adoption assistance- IRC 137 excludes ER provided adoption assistance of 13,840. Retirement Plans- Deferred comp plans qualified= 401k and 403b. Non Qualified plans are 457 (public sector only). 2018 Limits on all plans are 18,500 and 6,000 for over 50 years old. Non-Qualified plans can be discriminatory. Non- Discrimination Testing 401k-

W4S correct answer Give this form to the third-party payer of your sick pay, such as an insurance company, if you want federal income tax withheld from the payments. 940 correct answer Use Form 940 to report your annual Federal Unemployment Tax Act (FUTA) tax. Together with state unemployment tax systems, the FUTA tax provides funds for paying unemployment compensation to workers who have lost their jobs. Most employers pay both a federal and a state unemployment tax. Only employers pay FUTA tax. 941 correct answer Form 941 is a quarterly report of wages paid to employees and withholdings made by employers. It also includes information on the employer's share of Medicare and Social Security taxes during the period reported. 941 forms must be mailed or e- filed to the IRS. Schedule D on the 941 is to explain discrepancies caused by acquisistions. 941-M correct answer Employers that fail to w/h or deposit taxes or file returns on time. 941X correct answer The IRS requires businesses to report Form 941 errors on Form 941X, the Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund.Form 941X is a stand- alone form that relates line-by-line to Form 941. 943 correct answer Form 943. Department of the Treasury. Internal Revenue Service. Employer's Annual Federal Tax Return for Agricultural Employees. 944 correct answer IRS Form 944 - Employer's Annual Federal Tax Return was initiated by the IRS several years ago to give smaller employers a break in filing and paying federal payroll taxes (federal income tax withheld from employees, and Social Security and Medicare payments owed by employers and employees). 945 correct answer IRS Form 945 is used to report on federal income taxes withheld from non- employees, specifically backup withholding. W2 correct answer Form W-2 is an Internal Revenue Service tax form used in the United States to report wages paid to employees and the taxes withheld from them. Employers must

complete a Form W-2 for each employee to whom they pay a salary, wage, or other compensation as part of the employment relationship W2C correct answer File Forms W-2c (Corrected Wage and Tax Statement) and W-3c (Transmittal of Corrected Wage and Tax Statement) as soon as possible after you discover an error. Also, provide a Form W-2c to the employee as soon as possible. W3 correct answer Form W-3 is a transmittal form that's sent to the Social Security Administration to show the total earnings, Social Security wages, Medicare wages, and withholding for all employees in the previous year. The official title of the form is "Transmittal of Wage and Tax Statements." W3C correct answer Use this form to transmit Copy A of Form(s) W-2c, Corrected Wage and Tax Statement. W7 correct answer aliens who are not eligible for a SSN and must file a tax or information return would request the IRD the TIN# on this form. W9 correct answer Used to obtain the taxpayer TIN # and to enable donors to claim a tax deduction. 1099 MISC correct answer In the United States, Form 1099-MISC is a variant of Form 1099 used to report miscellaneous income. One notable use of Form 1099-MISC is to report amounts paid by a business to a non-corporate US resident independent contractor for services. 1999 R correct answer In the United States, Form 1099-R is a variant of Form 1099 used for reporting on distributions from pensions, annuities, retirement or profit sharing plans, IRAs, charitable gift annuities and Insurance Contracts. SS4 correct answer Application for a EIN

that meets the standards of the Affordable Care Act. The 1094-B is a brief form that takes up less than a page. 1094-C correct answer Updated for Tax Year 2018. IRS Forms 1094-C and 1095-C are filed by employers that are required to offer health insurance coverage to their employees under the Affordable Care Act, also known as Obamacare. 1095-B correct answer Form 1095-B is a health insurance tax form which reports the type of coverage you have, dependents covered by your insurance policy, and the period of coverage for the prior year. This form is used to verify on your tax return that you and your dependents have at least minimum qualifying health insurance coverage. 1095-C correct answer Updated for Tax Year 2018. IRS Forms 1094-C and 1095-C are filed by employers that are required to offer health insurance coverage to their employees under the Affordable Care Act, also known as Obamacare. Purpose of 6056 correct answer Section 6056 was added to the IRS tax code with the passing of the Affordable Care Act (also known as Obamacare) and explains what businesses need to do to notify their employees and the IRS about the health care coverage they offer. ... As part of that requirement, the law added Section 6056 to the Internal Revenue Code. 886-W 6 Part correct answer Form IRS sends to ER for a federal tax levy on an employee

Payroll Essentials: Key Concepts and Regulations, Exams of Business Fundamentals

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Certified Payroll Professional Exam (CPP) Part 1