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CPP Training


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What is an Interface? Internal vs. External?
How is this different from an Integrated System?
Communicating information from one system to another.

Internal interfaces stay within the company/entities, external interfaces are between companies/entities.

An Integrated system uses the same information for multiple uses. Payroll and HR commonly use the same system to produce different information. This is an example of an Integrated system.

What is a:

System Edit?
Batch Control?

System Edit: A warning or altert built into the system that checks for errors and notifies the operator of their existence.

Batch Controls: Requirement that data entered into the system in groups such that they can be correctly analyzed and diagnosed if problems exist.

What should and should not be included in for System Documentation?
Should be Included:
Confidentiality Statement
Step-by-Step Instructions
Reports Produced and Used
Interactions with Other Departments

Should not be Included:
Company Policies
Technical Materials

What are some security measures used in Payroll?
Segregation of Job Duties
Rotation of Job Assignments
Paychecks only Going to Employees
Conduct Physical Payouts

Limit System Access
Secure Files
Develop Audit Trails
Back up Data

What should be considered for Disaster Recovery?
Identify Recovery Time Objectives

Identify Critical Resource

Know what Processes are Manual and Not Manual

Keep Backup Files Off Premises

Section 1:

What is the Common Law Test?

Law to Determine whether someone is an Employee or Independent Contractor:

If the employer has the right to control what work will be done and ho wthat work will be done, then an employer-employee relationship exists and the worker is a common law employee.

IRS Looks at:
Behavioral Control - Level of instruction and training the business gives the worker.

Financial Control - Whether the worker has unreimbursed business expenses, substantial invetment in work, availability to the public, how they are paid, and if there is profitability/loss risk.

Type of Relationship - Whether there is a written aggreement, employee benefits are provided, term of the relationship, and whether the services provided are an important aspect of the business.

Section 1:

What is the Reasonable Basis Test?

Part of the determination of whether someone is an Employee or Independent Contractor.

An employer may treat a worker as an independent contractor if it has a "reasonable basis" for doing so. This consists of:

-Court Decisions, IRS Rulings, IRS Technical Advice, etc.
-Past IRS Audit of the employer that did not result in a finding of taxes owed or penalty attributed to the interpretation.
-Longstanding recognized practice in the industry of the company labling the worker as an independent contractor.

Consistent treatment is a must.

What should an employer or worker do if they are not sure about the employment status of a worker as an employee or independent contractor?
File an SS-8 form to the IRS.

Treat worker as an employee until you recieve an IRS response to avoid penalties and additional employer costs.

Section 1: 1-10

What are Statutory Employees?

Employees who must be treated as employees even though they may meet independent contractor provisions by the common law and reasonable basis tests.


Drivers - Commissioned based Drivers

I- Insurance Agents - salesperson working for one company.

S- Salespersons, Traveling

H - Homeworkers

Section 1: 1-11

What are Statutory Nonemployees?

Certain workers which may qualify as employees under the common law and reasonable basis tests, but are treated as Independent Contractors.


Real Estate Agents

Direct Sellers - Mary Kay, Avon, Pampered Chef, etc.

Section 1: 1-12

What are Temporary Help Agency and Leased Employees?

Non-Permanent Relationship Employees

Temporary Help Agency Employees:

Workers hired through a temp help agency. Employer pays fee to the temp help agency.

Leased Employees:

Generally more skilled workers than temp-help workers. Payment is made by the leasing companies.

Section 1: 1-14

What is the FLSA?

Fair Labor Standards Act

FLSA broadly regulates the minimum wage rates, overtime pay, child labor, and equal pay for equal work.

Section 1: 1-15

What factors does the Department of Labor consider when making an employment status determenation include?

Control of Employee

Worker has a chance to make a profit or risk a loss

Whether the worker invests in tools or materials require to perform teh work or hires helpers

Whether work requires special skills

How Permanent the working relationship is

Whether work performed is an integral part of the business.

Section 1: 1-15

What is Reciprocity?

Requirement of employers' to withhold only for their employee's state of residence.

Other states allow resident sto claim a state tax income credit for taxes paid to other states or localities.

Section 1: 1-15

What is the ABC test relating to Unemployment Insurance Laws?

Absence of Control

Business is Unusual and/or Away

Customarily Indpendent Contractor

Section 1: 1-17

Waht are some IRS Penalties for unitentially misclassifying an employee as an independent contractor?

* For not witholdin gFIT, the tax assessed is 1.5% of wages paid. This assessment is doubled to 3% if the employer failed to file an information return (1099-MISC) for the worker with the IRS.

*For not withholding the employee's share of social security and Medicare taxes, the tax assessed is 20% of the employee's share. This assessment is doubled to 40% if the employer failed to file an information return (1099-MISC) for the worker with the IRS. If intentionally done, then the amount is 100%.

Section 1: 1-21

How can Employers Protect themselves from I-9 violations?

-Employees must fill out section 1 of the Form I-9 on their first day of work.

- Making sure employees provide original documentary evidence of tehir identity and authorization to work within 3 business days of the date of hire.

- Making sure documents provided are genuine.

-Properly completing the employer's portion of FormI-9 within 3 business days of the date of hire.

-Keeping I-9 forms for at least 3 years from date of hire, or 1 year from date of termination. Whichever is longer.

-Presenting Form I-9 on request within 3 business days to an inspector from teh U.S. Citizenship and Immigration Services.

Section 1: 1-21

What is IRCA?

Immigration Reform and Control Act of 1986:

Makes it illegal for an employer to knowingly hire or continue to employ an unauthorized worker.

Section 1: 1-24

What is a disadvantage of using E-Verify?

Employeer may only accept List B documents which have a Photograph.
Section 1: 1-34

What is the Personal Responsibility and Work Opportunity Reconciliation Act of 1996? How is the law administered from the employer's side?

Act which requires employers submit information to track new hires. Requiring that each of the below is reported:

Employee's name, address, and social security number

Date employee first performed services for pay

The employer's name, address, and federal employer identification number (EIN)

Employers are only obligated to submit new hire reporting - and adhere to those state's laws - to one state in which it's employees work, but not all.

Section 2: 2-3

What does the FLSA Cover?

Sets the Minimum Wage and Overtime rates.

Requires Recordkeeping for Employers.

Places restricctions on the types of work children can do and hours they can work.

Mandates equal pay for equal work.

Section 2: 2-3

What does the FLSA not Cover?

Require employers to provide paid vacations, sick days, jury duty leave, holidays, lunch breaks, etc.

Regulate how often employees must be paid, or when they must be paid after termination of employment (either voluntarily or involuntarily.) These are State laws/requirements.

Restrict the hours that employees over 16 years of age may be required to work.

Section 2: 2-4

What is the difference between Enterprise and Individual employee coverage under FLSA?

If at least two employees of the business are employed in jobs related and essential to interstae commerce and the business has annual gross sales of at least $500,000


Are Hospitals, Nursing Homes, Schools, and Public Agencies

Are covered by FLSA under Enterprise coverage.

Individuals are covered under FLSA by Individual employee coverage if he or she is engaged in interstate commerce or in the production of goods for interstate commerce.

Section 2: 2-5

What is the difference between exempt and non-exempt employees?

Exempt employees are not eligible for overtime and employers are not obligated to pay them minimum wage.

Non-exempt employees are eligble for overtime and must be paid minimum wage.

Section 2: 2-6

What are the White Collar Exemptions?

Administrative: Weekly salary of $455 per week, non-manual, exercise of discretion and independent judgment with respect to matters of significance.

Executive: Weekly salary of $455 per week, customarily oversees two or more employees, hire and fire abilities.

Professional: (Learning or creative) Needs advanced knowledge training/certification, work requires knowledge of an advanced type.

Computer Professional:$455 Per week or 27.63 an hour.

Outside Salesperson: Primary duty must be making sales of tangible or intangible items. or Obtaining orders OR contracts for services or the use of facilities AND customarily and regularly work away from the employer's place or places of business in performing the employee's primary duty.

Section 2: 2-26

How do you determine a Highly Compensated Employee? What wage makes them an exempt employee?

An employee with gross wages of over $100,000 a year is exempt from overtime pay regardless of responsibilities.

If they fall below the $100,000 threshold, a company may make a makeup payment to keep these employees exempt. Otherwise back overtime pay may be required.

Section 2:

What are the three parts of the Common Law Test of determining whether someone is an employee or independent contractor?

Behavioral Control
Financial Control
Relationship with Individual

Section 2:

What are the two Accronyms for Statutory Non-Employees and Statutory Employees

Real Estate Agents
Direct Sales (Newspaper Delivery, Avon, etc.)



Insurance Salespersons
Salesperson, Traveling

Section 2:

What does ABC stand for, and how does it related to State Unemployment Laws?

Absence of Control
Business is Unusual and/or Away
Customarily Independent Contractor

General rule on what sorts of employees are exempt from State Unemployment Insurance Laws by state. Some states want A & C, but not B, some organize it differently.

Section 2:

What must be reported in the New Hire Reporting

Name, Address, Date employee first performed services for pay & Social Security Number.

Name, Address & Federal Employer Identification Number.

Section 2: 2-28

Can an exempt employee take FMLA leave and still get paid for days worked?

Yes, FMLA leave provides for an intermittent leave allowing for tracking of hours for pay and leave.
Section 2: 2-29

What are the issues with Furloughing an exempt employee.

The employer must pay an exempt employee the full predertmined salary amount "free and clear" for any week in which the employee performs any work without regard to the number of days or hours worked. However there is no requirement that the predetermined salary be paid if the employee performs no work for an entire workweek.

An employer may also conduct a furlough during a slow-down of business.

Section 2: 2-33

Employees in retail or service industries are exempt from the overtime pay requirements of FLSA if:

1. Their regular rate of pay on a weekly basis is at lest 1 1/2 times the federal minimum wage in effect.

2. More than half their pay for a representative period comes from commissions.

Section 2: 2-37

What are the Minimum Wage Amounts?

Minimum Wage: $7.25
Opportunity Wage (for Individuals under 20, newly hired, and within 90 days of their new hire): $4.25
Section 2: 2-37

What is the workweek?

168 consecutive hours. Overtime is calculated within this constraint.
Section 2: 2-39

What is the Tip Credit?

If you have an employee who is tipped, you may pay an employee less than minimum wage and recieve a Tip Credit towards the Federal Minimum Wage (up to $5.12.)

1.Tipped employee must actually recieve enough in tips as the employer takes the credit.

2.Employee must be informed of Tip Credit provision.

3. All tips received by the employee must be ckept by the employee, though tip poolin gmay be required.

4. Credit card tips must be given to the employee by the next payday, although the CC company's percentage charge for the use of the card may be deducted from the tip.

Section 2: 2-44

What types of pay must be included into the regular work week for the calculation of overtime?

What wages would not be included?

All pay which has been communicated before the work was completed must be included in the Overtime calculation.

A discretionary bonus, igft, PTO and Reimbursed expenses, Volunteer work, Benefit plan contributions, Stock Options, Overtime Premiums,Extra days worked premiums, Premium pay under union contract for extra hourse are examples of wages which would not be included.

Section 2: 2-43

What is the proces for changing the work week?

1. Add the overlapping days to the old workweek.

2. Calculate the overtime hours and pay due for the olda nd new workweeks on this basis.

3. Add the overlapping days to the new workweek.

4. Calculate the overtime hours and pay due fo rthe old and new workweeks on this basis.

5. Pay the employee the greater amount from step 2 or step 4.

Section 2: 2-45

What needs to be done when a regular rate of pay inclusive bonus is given after a time period in which it was earned?

The must be allocated when finally determined tot he workweeks during which they were earned.

Bonus/Workweeks = Bonus Per Workweek

Bonus Per Workweek *.5*OT hours in that pay period = OT Premium Owed

Sum OT Premium Owed for total bonus.

Section 2: 2-52

What are some less common Overtime aggreements?

Fluctuating Workweeks

Belo-Type Wage Plans

Overtime Prepayment

Daylight Savings Time

Section 2: 2-54

What is Compensatory Time Off?

Employers may provide time off within the same pay period to compensate for ovetime costs.

A broader exemption exists for government employees. The agreement has to be established before work, allow for a reasonable period of time to take time off, paid upon termination, may have a cap, and is not included in their calc for overtime. Employees can be required to take the time off though.

Section 2: 2-58

What are the types of Compensable time Issues?

Unathorized Overtime
Meal and Rest Periods, Travel Time, On-Call Time, Waiting Time, Time Spent at Meetings and Training Sessions, Preliminary and Postliminary, Activities, Receiving Medical Attention, & Child Labor Restrictions.
Section 2: 2-68

What are the Enforcement and Penalty areas for Department of Labor violations?

Wage and Hour Investigations

Backpay and Damages

Statute of Limitations

Criminal and Civil Penalties

Section 2: 2-69

What is a Department of Labor Wage and Hour Investigation?

Triggered usually by employee complaints of violations. Generally the DOL will work with the employer to figure out back wages owed, but if no settlement is made, the DOL can decide the amount owed.
Section 2: 2-69

What are the Backpay and Damages Enforcement and Penalties generally regarding?

Typical in case where time worked is not agreed upon. Damages may also be paid if personal attacks were made.
Section 2: 2-70

What is the Statute of Limitations on DOL violations?

Complaints can be filed with the DOL forminimum wages and overtime due from up to two years previous, three if the conduct was willful by the employer.
Section 3: 3-4

What is the Fair Market Value?

Why is this important to Payroll?

The price an item or service would be sold for on the open market.

Payroll is concerned about this amount for the puposes of taxing it as compensation to the employee.

Section 3: 3-4

What is the Includable Fringe Benefit Amount Calculation?

Includable Fringe Benefit Amount = Fair Market Value - (Employee Paid Amount + Amount Excluded by Law)
Section 3: 3-5

What are possible Nontaxable Fringe Benefits?

*No-Additional-Cost Services
*Qualified Employee Discounts
*Working Condition Fringes
*De Minimis Fringes
*Qualified Transportation Benefits
*On-Premises Athletic Facilities
*Qualified Retirement Planning Services
*Qualified Moving Expense Reimbursements

Section 3: 3-6

What are the conditions of No-Additional-Cost Services Nontaxable Fringe Benefits?

1.Free service is regularly offered for sale to customers in the normal course of the employer's line of business.

2. Employer bears no substantial additional cost.

3. The term employee is inclusive of leaved, retired, and out on disability employees.

4.Service is available to all employees regardless of status in organization.

Section 3: 3-6

What makes something a Qualified Employee Discount a nontaxable Fringe Benefit?

1. Discount of goods cannot exceed the gross profit percentage when the goods are sold to customers. (Total sales - cost of goods sold) / total sales.

2. Discount cannot exceed 20% of price at which services are offered customers.

3. Must be offered in line of business of the employer.

4. Offered on equal terms to all employees, not favoring highly compensated.

5. Cannot be real estate.

Section 3: 3-8

What makes a fringe Nontaxable Benefit based on the fact that it is De Minimus?

1. the value of the benefit is so small that account for it would be unreasonable.

2. The employer must take into account the frequency which it provides the benefit to all its employees.

3. Term employee means anyone whom the benefit is provided.

Section 3: 3-6

What makes a benefit nontaxable because they are a "Working Condition Fringe?"

1. The employee's use of the property or services must relate tot he employer's trade or business.

2. The employee would be able to deduct the expense on their taxes if they paid for it themselves.

3. Employer must maintain the appropriate records to substantiate that the expense was a benefit.

Section 3: 3-10

What makes a benefit nontaxable as a "Qualified Transportation Fringe?"

1. Transportation between home and work in a commuter highway vehicle provided by the employer if:
*The vehicle seats at least 6 adults other than the driver
*At least 80% of the vehicle's mileage can be expected to be for commuting
*At least one-half of the vehicle's seating capacity (exclding the driver) is used by employees.

2. Transit passes, vouchers, etc. reimbursemetn for them by the employer.

3. Parking provided on or near the employer's premises or at a park and ride facility.

Section 3: 3-15

How would an athletic facility be a nontaxable fringe benefit?

1. The facility is on the employer's campus.

2. Facility is operated by teh employer through its employees or another entitiy.

3.Substantially all use is by employees, spouses, or dependents.

4. Not a resort or residential facility.

Section 3: 3-16

What makes Employer-Provided Vehicles nontaxable or taxable fringe benefits?

De minimis fringe benefit use: No use outside of business use.

Qualified Nonpersonal Use: Such as police officers, etc.

Automobile Salespeople: Significant restrictions are imposed - no one else can use the vehicle, no vacation trips, no storage of personal possesions.

Section 3: 3-19

What is the Commuting Valuation Method for Employer Provided Use of Automobiles?

Commuting Valuation Method: 1.50 per one way commute, $3.00 per round trip.

1.Vehicle is owned or leased by employer and provided to employee for use for business purposes.

2. Company has to have a policy prohibiting personal use.

3. Employee is not a control employee.

Section 3: 3-21

What is the Annual Lease Valuation Method for determining taxable compensation for Employer Provided Automobile?

Annual Lease Valuation Method: Employee must determine Fair Market Value of car on the first day it was provided for use, determine the annual lease value, calculate the percentage of personal miles vs total miles. The lease by the percentage of personal use determines the taxable income to the employee.
Section 3: 3-22

What is the Cents-Per-Mile method per for determining taxable compensation for Employer Provided Automobile?

Determine Fair Market value, personal use of company vehicle, and multiply by $.51 cents.

1. Emplyoer must expet the employee to regularly use the vehicle while conducting the employer's business, or the vehicle must actually be driven at least 10,000 miles annually and be used primarily by the employee.

2. FMV of the car cannot exceed $15,300 for cars placed in service in 2011.

Section 3: 3-23

How do you determine taxable compensation for use of an employer provided aircraft?

General Valuation Rule: Value of a personal flight on an employer-provided aircraft where the employer also provides the pilot is the amount an individual would pay in an arm's length transaction to the charter a comparable aircraft and pilot for a comparable flight.


Non-commercial flight valuation rule: Calculated by using an aircraft multiple based on teh weight of the airraft and a cents-per-mile rate known as the Statndard Industy Fare Level.

Section 3: 3-27

How do you determine the whether a GTL Plan is non-descriminitory?

If one of the following tests are met:

1. At least 70% of all employees benefit from the plan

2. At least 85% of the employees participating in the plan are not key employees (Officers with wages above 160,000, 5% owners, 1% owners with wages above $150,000)

3. All participants belong to a classification that the IRS has determined to be nondiscriminatory


4. The plan is part of a qualified cafeteria plan.

Section 3: 3-29

How do you determine the taxable benefit for a General Term Life Policy?

1. Determine total amount of employee's GTL under employee's plan.

2. Calculate excess benefit above $50,000.

3. Divide excess by $1,000.

4. Determine the employee's age as of December 31 of the calendar year during which the benefit is taxable.

5. Use IRS table I to calc the fair market value of one month of excess insurance per $1,000 and multiply it by the answer obtained from step 3.

6. Deduct any after-tax contribtions by teh employee.

7. Add the excess amount to the employee's income, withhold and pay SS and Med Taxes, and repor the amount as required.

Section 3: 3-34

What are the initial tests of deductability for Moving Expenses?

Distance Test:
-New workplace must be at least 50 miles farther from the employee's old residence than the previous workplaces was. Residence may be used if employee was not previously employed.

Time Test:
-During the 12-Month period immediately following the move, teh employee must work full time for at least 39 weeks in teh general location of the new workplace.

Section 3: 3-35

What are Deductible Moving Expenses?

Transportation of Household Goods: All resasonable expenses incurred in packing and moving household goods and personal effects to the new residence and storing and insuring them while in transit are deductible.

Expenses of Traveling from old Home to new Home: 19 cents per mile. All Reasonable expenses incurred while traveling from the employee's old home to the new home, such as transportation and lodging during the trip, are deductible.

Family members are included, and the move can be from the US to a foreign country.

Section 3: 3-35

What code represents Moving Expenses on the W-2?

Code P
Section 3: 3-39

What are the two types of Educational Assistance?

Job-Related Education: Job Related fringe must meet three conditions:

1. Eduction must not be required to meet minimum requirements of the job.
2. Courses are not taken to qualify the employee for a promotion, etc.
3. Related to their current job to maintain their current skills.

Non-Job Related Education:
Allows $5,250 a year of tax free reimbursement provided it is part of a qualified plan.

Section 3: 3-42

What are the qualifications for Business Travel Expense Reimbursements?

Travel Must be "away from home" and "Temporary"

Transportation expenses don't exceed 51 cents per mile.

Reimbursements for daily transportation expenses if the expenses are incurred going between residence and temporary location and the employee's residence is at principal place of business, and the expenses are incurred in going between residence and anotehr work location.

Section 3: 3-55

Where will Taxable Business reimbursements (usually in excess of untaxable) show up on the W-2?

Box 12, code L.

Also, box 1, 3, and 5.

Section 3: 3-57

How will Employer-Provided Meals and Lodging be not be subject to federal income taxation?

* The meals are furnished on the employer's business premises, and

* Furnished for the convenience of the employer.

Section 3: 3-58

How is Employer Provided Lodging not Federally Taxable?

* The lodging is furnished on the employer's business premises

*The lodging is furnished for the employer's convenience

*The employee is required to accept the lodging as a condition of employment

Section 3: 3-59

What are the details on Adoption Assistance?

Dollar Limitation: 13,360 per eligible Child

Income Limitation: Amount which can be excluded from gross income is phased out for individuals with income above $185,210. Ends at 225,210.

Section 3: 3-59

How will Adoption Assistance show up in Box 12?

Code T, for Toddler...
Section 3: 3-61

What are the rule around Overpayments?

Pay incorrectly given over a tax year must be refunded at the gross amount.
Section 3: 3-62

What are the rules around Length of service or safety achievement awards?

Must be tangible personal property which does not include cash or equivalent, vacations, theatres, and sporting events.

Made in a meaningful presentation.

May not be presented for anything under five years.

Amount spent must not be over $400 per employee per year. Total for one employee can not be greater than $1600.

Section 3: 3-66

What are the reporting requirements for backpay?

Should be reported on the current Quarterly 941, and on the employee's current year W-2.

SSA requires that you report the wages in the proper year to correctly allocate earnings to each year it was earned.

Section 3: 3-73

How much dependent care assistance is non-taxable? What are the requirements?

$5,000 is exempt from taxation.

It must be neccesary, paid when expenses occured, within a written plan which does not discriminate.

Shown in Box 10 of the W-2.

Section 3: 3-76

What is the calc for a Gross Up Check?

Gross amount of Earnings
Desired Net Payment
100%-Total Tax%

Section 3: 3-77

If you cross the SS wage base on a GrossUp Calculation, how would you change the calculation?

On the amount subject to SS, determine the amount needed to be withheld and add it to the Net amount needed.

Subtract out after.

Section 3: 3-80

What are the special rules on Golden Parachute Payments?

Shows on Box 12, Code K... for Kings...

Excess parachute payments (portion which exceeds the employee's five-year average compensation) is subject to a 20% excise tax on top of the normal withholding that the employer must withhold.

Section 3: 3-83

What are the rules regarding Military Pay?

1. Made by an employer to an employee for any perido during which the employee is performing armed service for more than 30 days.

2. Represents all or a protion of the wages that the employee would have recieved from the employer if the employee were performinmg services to that employer.

Anything paid after 30 days, should be put on a 1099. It is subject to FUTA and Medicare, but not Federal Income Tax.

Section 3: 3-86

What are the rules around Severence or Dismissal Pay?

Severence or dismissal pay should be must be included in the employee's income and all taxes withheld.

It is still paid as part of their employment.

Section 3: 3-82

What are Supplemental Unemployment Benefits?

Usually available through Unions.

Excluded from SS, Medicare, and FUTA if paid to unemployed and termed for reasons which qualify.

Section 3: 3-93

How are Tips handled?

Employees must report tip income to the employer. Must earn at least $20 a month in tips.

Employer is liable only for the employer share of SS and Medicare if the employee underreports or fails to report.

Reported in Boxes A and B if not enough income is shown to collect Social security and Medicare.

Section 3: 3-99

What are the withholding rules on Wages Paid After Death?

Dies before cashing paycheck:
Reissue check to his beneficiary, Report to individuals W-2. All taxes remain.

Wages Paid after employee dies in the same year:
Pay beneficiary, withhold only Social Security and Medicare. Report on W-2 and issue 1099 to beneficiary if over $600.

Wages paid after the year of Death: Pay to beneficiary, no withholdings are required. Reported to Beneficiary on a 1099 if over $600.

Section 6: 6-2

When are Wages actually or constructively paid to an Employee?

Constructive Reciept: The date paychecks are available to the employee.

Constructive Payment: The day when money is available to the employee.

Section 6: 6-10

How long do you need to keep W-4's?

Employer's must retain each employee's Form W-4, whether filed on paper or electronically, for at least four years after the date the last return was filed using the informationon the Form W-4.
Section 6: 6-17

What are the other W-4 forms?

W-4P - Pension or Annuity withholding elections.

W-4S - Withholding from Sick Pay when processed by a Third Party.

Section 6: 6-20

What are the methods for determining income tax withholding?

Wage Bracket Method
Find Table that applies to employee's pay period; Determine wages subject to FIT; Locate the wage bracket relevant to pay period; move across for allowances.

Percentage Method:
Find Number of allowances; find pay period; determine the employee's wages subject to FIT;Locate percentage table; use formula detailed on table.

Annualized Wages (used in most computer systems)
Average Estimated Wages
Cumulative Wages

Section 6: 6-28

What are typically Supplemental Wages?

Reported tips, Overtime Pay, Bonuses, Back Pya, Commissions, Payments made under reimbursemetn or other expense allowanc arrangements in an unaccountable plan, noncash fringe benefits, Sick pay by a third party, others.
Section 6: 6-29

What are the two rates you can use on Supplemental Wage withholding?

25% or 35%.

25% used on all wages under $1 Million (YTD.) 35% on all earnings over.

Aggregate Method of Calculation:

Tax Full Amount, Subtract Amount on Regular Wages would have been, Supplemental Taxes are result.

Section 6: 6-30

How do you calculate Supplemental wages that crosses someone over the $1 Million dollar threshold?

Either split the amount under $1 Million, with the amount above; or 35% on the entire amount.
Section 6: 6-37

Under what circumstances can an individual not refuse withholding on Periodic Payments and Annuities?

*Recipient has paymetns mailed to address outside US.
*Recipient has not given the payer a resident address where the payments should be mailed.
*Recipient has not given the payer his or her social security number, or the IRS has told the payer the SSN provided is innacurate.

Section 6: 6-42

If you do not have a Tax ID for an individual, what rate do you need to withhold at as Backup?

28% is the established rate for Backup Withholding.
Section 6: 6-51

What Wages are Exempt from Social Security and Medicare Taxes?

*Sickness or injury payments.
*Sick or disability benefits paid on behalf of an employee after six months on leave.
*Payments made under a CAFE125
*Qualified Moving Expenses
*Wages for an employee under 18 who is also a child of a farmer.

Section 6: 6-52

What types of employement types are exempt from Social Security and Medicare?

*Temporary foreign agricultural workers,
*Work by a child under 18 for their parents.
*Work done by student who are enrolled and regularly attending classes at a school for which they are working and not career employees.
*Work done by Nonresident aliens under F, J, M, or Q visas.
*Some State and Local Government Employees are exempt from Medicare. (Rare*)

Section 14: 14-2

How are US Citizens who work abroad treated differently?

Unless foreign income or housing exclusion, US Citizens are subject to all US Taxes.

Form 673 must be filed to let the employer know that the employee claims to excluded from taxation due to the bona fide residence or physical presence test.

Section 14: 14-4

What is a totalization agreement?

An agreement between the US and other specific countries to prevent double taxation for social security and medicare type taxes.

An employee can be permanently working in another country the employer should contact the IRS to recieve a certificate establishing that the employee no longer needs to remit specific taxes because of their employment abroad.

Section 14: 14-6

What is the Bona Fide Residence Test?

Have to have one full taxable year as a resident of the other country.

The bring their family, intend to make the country their home, purchase a home/sign a lease, employment agreement specifies a longer term.

Section 14: 14-9

What is the Physical Presence Test?

The employee must be present in the country for 330 full days out of the previous 12 Months. Days outside the country may count if they are not spent in the US.
Section 14: 14-11

How do you determine the source of earned income for someone abroad?

Nubmer of days worked in the US
Total number of days worked
Total Income
US Source Income

Section 14: 14-13

What does not makes up the Foreign Housing Exclusion?

*Lavish or extravagant expenses under the circumstances
*Telephone and cabletelevision
*Deductible interest and taxes
*Capital expenditures, home improvements, or furniture
*Cost of Domestic Labor

Section 14: 14-14

What happens in Employer Tax Reimbursment with workers Abroad?

The employer deducts taxes paid to governments where no tax treaties exist to avoid double taxation.
Section 14: 14-20

What are the issues between Expatriat Workers and State taxes?

Determining Domicile: If the employee: Votes, maintains a residence, has immediate family in the state, Returns after vacation, etc.

And others are used. This can be complicated and based on relationships rather than physical presence.

Section 14: 14-22

What is the lawful permanent prescence test?

Under the "green card" or lawful permanent resident test, aliens who are lawful permanent residents of the U.S. are considered residents for incom tax purposes.
Section 14: 14-22

What is the Substantial Prescense test for determining foreign national Residency?

Alien is present in the US for a tleast 31 days during the Calender year; and

A really complicated formula you don't need to know.

Section 14: 14-25

What must Nonresident Aliens claim on their W-4? What other issues are there?

The must note that they are a non-resident alien, claim up to only one allowance.

Some countries don't have this as a burden (Canada, Mexico, and South Korea)

You must add additional amounts based upon a table, which bases the amount on the frequency.

Section 14: 14-33

What are exceptions to Non-Resident Alien Taxation?

JFMQ: Juan Fled to Mexico Quickly

J,F,M,Q visas and foreign students do not need to remit federal taxes.

Section 4: 4-12

What Box 12 code is Archer Medical Savings Acounts?

R - aRcher Medical Savings Accounts
Section 4: 4-13

What is COBRA?

Consolidated Omnibus Budget Reconciliation Act of 1985:

Any employer with a plan and 20+ employees must offer continuing coverage of their plan. This is a total cost plus 2% Administrative Fee.

Extends 18 months normally, 24 for Army Service or to 36 bankruptcy of the Employer following Termination.

Section 4: 4-19

What was the COBRA Subsidy?

If and individual was terminated involuntarily, the individual's previous employer may need to pay up to 65% of the premium and take a tax credit on this amount.

Employer could elect same and lower coverage.

Severence packages that fully cover these benefits may extend the start date of COBRA coverage subsidy.

Section 4: 4-23

What are Health Reimbursement Arrangements?

Reimbursements to the employee for actual expenses for covered individuals. Not taxable to the employee at the time of the reimbursement.
Section 4: 4-30

What is a Health Savings Account?

Savings account with no expiring date for the balance, limit of $5950 in 2011.

Any individual over 55, can make catchup contributions. Can be rolled over into an IRA.

Section 4: 4-41

What is the FMLA?

Family Medical Leave Act. Allows for individuals to go out on Medical leave and have a job to return to, benefits stay in tact as long as premiums have been paid.

Length of time is generally 12 weeks, after One year of service inclusive of 1250 hours in previous 12 month period.

Armed Service members are given special considerations here.

Section 4: 4-49

What are the three ways an employee can pay for their benefits while going on FMLA?


Pay As You Go


What is the Order of Recording Transactions
Transaction -> Journal -> Ledger -> Financial Statements
What is the Charts of Accounts?
Assets, Liabilities, Equity, Revenue, Expense
What are the three types of acounts payroll is usually involved in?

What is their Normal Account Balance?

Assets - Debit

Liabilities - Credit

Expense - Debit

What is the rule to know if something is a debit or a credit?
Asset or Expense Account
Debit - Increases
Credit - Decreases

Liability, Revenue, Capital
Debit - Decrease
Credit - Increases

Section 2: 2-58

What are Compensable Time Issues with Unauthorized Overtime?

If a worker can prove working overtime - even if it was unauthorized and against company policy - an employer is obliged to pay the amount.

The employer is still able to discipline the employee, but they do still owe the pay.

Section 2: 2-58

What are the Compensable Time Issues with Meal and Rest Periods?

An employer does not have to pay an employee for time where they are allowed to pursue their own interests, even if they are not able to leave the premises of the job site. Agreements between employers and employees are capable of circumventing the pursuit of interests criteria however.

The key is who's benefit the break time serves, the employer's or the employee's.

Rest Periods, coffee breaks, etc. are compensable time.

Section 2: 2-59

What are the Compensable Time Issues with Travel Time?

Most Rules are contained in the Portal-to-Portal Act of 1947.

Generally, traveling from home to work is not compensable, even if it is in an employer provided vehicle. Travel as part of an employee's daily work is compensable work time. Travel from home substantiating and overnight stay is compensable when an employee does the travel during normal business hours, including Sat and Sun.

Section 2: 2-61

What are the Compensable Time Issues with On-Call Time?

Employees who are on call in such a way that it seriously curtails their use of time for their own purposes must be paid, however, employees who need just leave word where they can be contacted do not need to be paid.

Distinction on significant curtailment is the crux of whether an employee is eligible to be paid for On-Call time.

Section 2: 2-58

What are the Compensable Time Issues with Waiting Time?

Whether time spent waiting is compensable worktime depends on whether the employee is "engaged to be waiting" or "waiting to be engaged."

Engaged to be Waiting - Compensable
Waiting to be Engaged - Non-Compensable

Section 2: 2-63

What are the Compensable Time Issues with Time Spent at Meetings and Training Sessions?

Attendance at meetings and training sessions are work time unless all following conditions are met:

1. The meeting is held outside of the employee's regular working hours.
2. Attendance is voluntary (not a condition of employment.)
3. The meeting is not directly related to the employees job.
4. The employee does not perform any productive work for the employer while attending.

There are special rules for trainee's and other quasi-employees.

Section 2: 2-63

What are the Compensable Time Issues with Preliminary and Postliminary Activities?

Activities which are "preliminary or postliminary" to and employee's principal work activity are not compensable unless a contract or custom between the employer and employee makes them so.

Changing clothes is compensable if it is integral and indispensable to the employee's principal activity.

If time can not be reliably measured, it is considered de minimis, and will not be compensated.

Section 2: 2-63

What are the Compensable Time Issues with Receiving Medical Attention?

Any time spent by an employee waiting for or receiving medical attention on the employer's premises or at the employer's direction during regular working hours is compensable work time.

Time spent for personal checkups, etc. is not compensable.

Section 2: 2-63

What are the Compensable Time Issues with Child Labor Restrictions?

Minors Under age 18: No hazardous jobs.

Minors age 14 & 15: can work limited hours (3 hour days/18 hour weeks during the school year but outside school hours, and 8 hour days/40 hours a week when school is not in session from 7a to 7p)

Minors Under age 14: Unless working for a parent, prohibited.

Agricultural and entertainment positions are largely excluded from this.

Section 2: 2-63

What are the Compensable Time Issues with Public Contracts Law?

Several laws regulate minimum wage and overtime pay which must be paid to employees working for employers with Government Contracts. These Laws are:
Walsh-Healey Public Contracts Act
Davis-Bacon Act
Contract Work Hours and Safety Standards Act
Service Contract Act
Copeland Anti-Kickback Act

Section 3: 3-24

What is the Commercial Flight Valuation Rule?

When an employee or relative does not qualify for the no-additional-cost service exclusion is 25% of the airline's highest unrestricted coach fare in effect for that particular flight. This cost must be included in the employee's income and is subject to all federal taxes.
Section 3: 3-80

What are the rules regarding Jury Duty Pay?

Depends on employer's policy:

1. If the employer pays an employee regular wages in addition to jury duty pay received from the government unit, the wages are subject to all taxes.

2. If the employer pays and employee the difference between the regular pay and jury duty pay, only that difference is taxable.

3. If the employer pays an employee wages for time spent on jury duty but requires the employee to turn over the jury duty pay to the employer, only the difference between he amount paid and the amount turned over is subject to fed taxes. The employee may deduct the turned over amount on their income taxes.

Section 3: 3-82

What are the regulations for employee loans?

Loans made to employees by their employer at interest rates below the applicable federal interest rate are below market, compensation-related loans. The amount representing the difference between the interest charged to the employee and the applicable federal interest rate must be included in the income of the employee on any day in which the combined amount of all outstanding loans between the employer and the employee is more than $10,000.

Amount is not subject to FIT.

Section 3: 3-100

What are the withholding and reporting requirements on non-cash fringe?

Non-Cash Fringe benefits may be treated as being paid in any period annually, or less.

Taxes are retained through imputing the income.

The employer should report the taxable value of fringe benefits on the quarterly reporting form (Form 941) for the period in which they were considered paid.

Section 14: 14-14

What are the Maximum Foreign Earned Income Exclusion, Base Housing Amount, and Maximum Foreign Housing Cost Exclusion for 2011?

Maximum Foreign Earned Income Exclusion: $92,900

Base Housing Amount: $27,870

Maximum Foreign Housing Cost Exclusion: $13,006

Section 4: 4-51

How much Sick Pay is Taxable and how long is the amount taxable for?

This depends on how the plan benefits are funded.any benefits provided that are attributable to employee ontributions after taxes are not taxable.

Employee's sick pay
Employer-paid premiums for last 3 years
Total premiums for the last 3 years

Taxable for six calender months. First day of calender month after injury occurs. W-4S needed for third party to withhold.

Section 4: 4-52

Who is responsible for the Employer withholding portions (SS & ME) of 3rd Party Sick Pay?

The 3rd Party generally will be responsible to withhold, however this can be expensive and the ER portion can be transfered to the employer if needed.
Section 4: 4-

What code is Sick Pay in Box 12?

Code J... for jammmies...
Section 4: 4-56

Are Permanent Disability Benefits Taxable?

They are subject to Federal Income tax withholding, but not Social Security, Medicare, or FUTA withholding.
Section 4: 4-59

What can not be offered in a CAFE125 Plan?

Nontaxable fringe benefets under IRC 132 (no additional cost services, discounts, etc.)
Meals and Lodging
Employer contributions to Archer MSA
GTL on the life of anyone other than employee


Section 4: 4-65

Who are / are not qualified under Cafeteria Plans?

Current Employees

Are Not:
Adult Children

Section 4: 4-70

What are the Health Care FSA Rules?

*Elections cover a full plan year
*Salary reductions to be capped beginning in 2013.
*No deferred compensation "Use it or lose it."
*Plan can allow a "grace period" up to 2 1/2 months
*Unused balances cna be distributed to reservists
*Uniform coverage throughout coverage period
*12-month coverage period
*Limiting health FSA enrollment to health plan participants.

Section 4: 4-85

What are the Annual contribution limits for 401k in 2011?

16,500, 5,000 for catchup contributions.
Section 4: 4-92

What are a Cash or Deferred Arrangements?

Allows eligible employees to have their employer contribute part of tehir salary to a plan rather than receivign the salary in cash. The amount contributed is pre-tax contribution that reduces the employee's taxable income.
What form may employees recievign $20 or more in tips use to repor their wages to their employer?
Form 4070
What kind of account is Accrued Salaries Payable?
Is Medical Insurance included in disposable pay?
Business expense advances not spent, but which are part of an accountable plan, must be returned to the employer within how many days to avoid taxation?
Within 120 days after the expenses were incurred.
If submitted electronically, Copy A of Form W-2 must be sent to the SSA no later than?
March 31st
Section 4: 4-105

What is a tax sheltered Annuity? 457(b) plan?

Special rules?

Tax Sheltered Annuity - Usually for School Teachers and Religious Institutions

457 (b) - Public Sector plans.

Most rules are the same as for 401k

Section 4: 4-121

What are Nonqualified Deferred Compensation Plans?

All plans which don't meet the IRC 401(a) requirements. Employers often use such plans to compensate certainhigh-level execuives because they are not restricted by the nondiscrimintaion requirements that apply to qualified plans or the contributiona dn beneit limitations.

Federal code 409 A tightens rules around these plans to show earnings and accounting requirements.

Section 8: 8-3

What is an SS-4? How do you obtain one?

Application for Employer Identification Number, it is what is required to get a FEIN.
Section 8: 8-5

How do you know when to deposit taxes?

Payroll Tax Deposit Rules:

Lookback Period: Take last two quarters of two years previous, plus first two quarters of previous year.

This determines your liability and your depositor status.

Section 8: 8-6

Using the lookback period, what is the difference for deposit schedule?

Under $1000, each year: Annual Depositer

Under $2500, each quarter: Deposit Each Quarter

Under $50000: Monthly Schedule Depositer

More than $50,000, less than $100,000: Semiweekly Depositor (Wednesday (WTHF) or Friday (SSMT) Deposits)

$100,000 or More: Next Business Day.

Section 8: 8-11

If semi-weekly period is interupted by a Federal Holiday, how does that affect the deposit date?

One extra business day is grated.
Section 8: 8-11

What is the shortfall rule?

The IRS allows a safe harbor shortfall so employers are not penalized for depositing a smal lamount less than the entire amount of their deposit obligation. An employer satisfies its deposit obligation the amount of the shortfall is no more than the greater of $100 or 2% of the entire amount due and deposited by the appropriate makeup date.
Section 8: 8-13

What is EFTPS? What are the types of payments?

Electronic Federal Tax Payment System:

Employers are required to deposit employment and other federal depository taxes must use the Electronic Federal Tax Payment System.

ACH Creit - Employer Pushes Money to Fed

ACH Debit - Fed reaches into bank account and takes money.

ACH requires 48 hour lead time to process.

FedWire - Initiate a same day (5pm on Fed's system) wire transfer to the FED.

Section 8: 8-18

What are the penalties for failing to deposit on time?

2% of undeposited amount if it is deposited within 5% of the due date

5% of the undeposited amount if it is deposited within 6-15 days of the due date.

10% of the undeposited amount over 15 days.

15% of the undeposited amount if is not deposited within 10 days of the IRS Delinquency notice.

Section 8: 8-24

What is Form 941?

Quarterly Federal Tax Return
Section 8: 8-24

What is Form 943?

Quarterly Federal Tax Return for Agricultural Employers.
Section 8: 8-33

What is the filing deadline for the Form 941? What is the Automatic Extension, and how do you get it?

Last day of the following month?

If filings have been timely, there is an extension of 10 days past the due date.

Section 8: 8-39

What is the schedule B for Form 941?

Displays tax "days of liability" by date liability was incurred.

Goes with 941 for semiweekly or greater depositer.

Section 8: 8-40

What is Form 945?

Taxes on Nonpayroll Withholding.
Section 8: 8-49

What is Form 941X?

Form to report corrections made to the Form 941 in a specific quarter.
Section 8: 8-66

How long do you have to file a 941X?

You have three years to file a 941X after the original 940 has been filed.
Section 8: 8-66

What are the Form 941 Penalties?

Failure to file = 5%

Maximum of 25%

Section 8: 8-81

What is Box 12 Code A?

Uncollected Social Security or RRTA Tax on Tips
Section 8: 8-81

What is Box 12 Code B?

Uncollected Medicare Tax on Tips
Section 8: 8-81

What is Box 12 Code C

Taxable Cost of Group-Term Life Insurance coverage over $50,000.
Section 8: 8-81

What is Box 12 Code D

Elective deferrals under a section 401(k) cahs or deferral arrangement plan.
Section 8: 8-81

What is Box 12 Code E

Elective deferrals under a section 403(b) Salary Reduction Aggreement
Section 8: 8-81

What is Box 12 Code D, E, F, G, H?

Elective deferrals under 401k, 403b, 457, plans.
Section 8: 8-81

What is Box 12 Code J

Nontaxable sick pay
Section 8: 8-81

What is Box 12 Code K

20% excise tax on excess golden parachute payments.
Section 8: 8-81

What is Box 12 Code L

Substantiated employee business expense reimbursements.
Section 8: 8-81

What is Box 12 Code M

Uncollected social security or RRTA tax on taxable cost of Group Term Life Insurance over $50,000.
Section 8: 8-81

What is Box 12 Code N

Uncollected medicare tax on taxable cost of Group Term Life insurance coverage over $50,000.
Section 8: 8-81

What is Box 12 Code P

Excludable moving expense reimbursements paid directly to employee.
Section 8: 8-81

What is Box 12 Code R

Employer contributions to an Archer MSA.
Section 8: 8-81

What is Box 12 Code T

Adoption Benefits
Section 8: 8-81

What is Box 12 Code V

Income from the exercise of nonstatutory stock options
Section 8: 8-81

What is Box 12 Code W

Employer contributions to a Health Savings Account
Section 8: 8-81

What is Box 12 Code Y

Deferrals under a section 409A nonqualified deferred compensation plan.
Section 8: 8-81

What is Box 12 Code Z

Income under section 409A nonqualified deferred compensation plan.
Section 8: 8-81

What is Box 12 Code AA

Designated Roth contributions under a section 401k plan
Section 8: 8-81

What is Box 12 Code BB

Designated Roth contributions under a section 403(b) salary reduction Agreement.
Section 8: 8-81

What is Box 12 Code DD

Cost of employer-sponsored health coverage.
Section 8: 8-81

What is Box 12 Code EE

Designated Roth contributions under a governmental 457 plan.
Section 8: 8-89

What is the deadline for paper W-2's to the SSA? Electronic?

Last day of February.

Electronic is March 31st.

Section 8: 8-105

What are the penalties for Failure to File Information Returns (1099, W-2, W-3, 1096, 1099)?

$30 Per return if the failure to file is corrected within 30 days.

$60 per return if the failure to file is correted more than 30 days after the due date but by August 1st.

$100 per return if the failure to file is not corrected after August 1.

Section 8: 8-123

What is Form 957?

Report of Backpay to SSA.
Section 9: 9-1

What are Involuntary Deductions?

Tax Levies, Child Support WIthholding Orders, Creditor Garnishments, Bankruptcy Orders, Student Loan collections, Federal Agency Debt Collections, and Federal Wage Hour Law Restrictions on Deductions.
Section 9: 9-1

What are Voluntary Deductions?

Wage Assignments, Union Dues, Credit Union Deductions, U.S. Savings Bonds, and Charitable Contributions.
Section 9: 9-2

What are the details of Federal Tax Levies.

Priority over other Deductions (Unless Child Support Order is already in place)

Exempt Amounts determined by Employee's elections on Form 1040, applies to Publication 1494. Default Value is Married Filing Seperately with 1 allowance.

Take Home Pay - Gross Wages Minus all deductions current.

Exempt amount that allowed to be paid outside the levy, and any additional is sent to the IRS.

Section 9: 9-9

What are the withholding maximums for Chidl Support Orders?

Based upon Disposable earings (Gross minus mandatory taxes.)Percentage depends upon whether they have a second family and/or are in Arrears.

Second Family & In Arrears: 55%
Second Family & Not In Arrears: 50%
No Second Family & In Arrears: 65%
No Second Family & Not in Arrears: 60%

There are state laws which affect this as well.

Section 9: 9-15

What is the standardized Child Support form Called?


Income Withholding Order

Section 9: 9-18

Which state do you follow for Child Support Withholding Purposes as determined by UIFSA?

State which the employee works deteremines:
*Employer's administrative fee

*The maximum amount permitted to be withheld for child support

*The time period for implementing the wihtholding order and remitting withheld amounts

*The riorities for withholding and allocating income withheld for multiple withholding orders

*Any withholding terms or conditions nto specified in the order.

Section 9: 9-22

What are the methods states use to divy up Child Support orders.

Weighted Average

Apply Amounts Equally

First Come First Serve

Section 9: 9-41

What are the limits on creditor garnishments for withholdings?

25% of disposable earnings for the week; or the amount by whichthe employee's disposable earnings for the week exceed 30 times the federal minimum hourly wage then in effect.
Section 9: 9-45

Bankruptcy orders take priority over what other garnishments?

Tax levies, and other garnishments except child support.

Bankruptcy will pay these other garnishments through the bankruptcy procedure.

Section 9: 9-47

What are the limits of Student Loan Collections?

1st Loan - 15% total disposable

2nd Loan - 25% total disposable

Section 9: 9-52

What is a Wage Assignment?

A Voluntary Deduction which allows the employer to withhold wages from an employer to pay back a third party for money owed.

No Limits on these amounts.

Deck Info