APA FPC-Remote Fundamental Payroll Certification Exam Practice Test

Comprehensive and Detailed Explanation:PayrollStandard Operating Procedures (SOPs)must beregularly updatedto maintain compliance and accuracy.

Best practice is to update SOPs whenever workflows change(Option C).

Option A (Annually)is incorrect becausewaiting a full yearcould lead to outdated procedures.

Option B (Quarterly)is incorrect unless payroll processes are highly dynamic.

Option D (When management changes)is incorrect becauseprocesses may change independently of leadership changes.

Comprehensive and Detailed Explanation:State Unemployment Tax Act (SUTA) liabilityis determined based onwhere an employee works and receives direction from, not necessarily where a company is incorporated.

Thekey factors for determining SUTA stateinclude:

Base of Operations (Option A)– Where the employee works.

Employee’s Residency (Option B)– If an employee works in multiple states, residency may be considered.

Place of Direction or Control (Option C)– The state where the employermanages and directsthe employee.

Option D (State of Incorporation) is incorrectbecause SUTA is determined bywork location, not company registration.

Comprehensive and Detailed Explanation:Independent contractors do NOT receive a salary.They:

Invoice for services renderedrather than receivingfixed wages.

Risk profit or loss(Option B) based on how they manage expenses.

Can hire assistants(Option C) to help complete tasks.

Can end the relationship at any time(Option D) unless bound by a contract.

Option A (Receive a salary) is incorrectbecausesalaries are paid only to employees, not independent contractors.

Comprehensive and Detailed Explanation:Social Security tax is6.2%forboth the employer and employee, so total liability is12.4%ofSocial Security taxable wages.

Calculate Social Security taxable wages:

Gross pay:$32,500.00

Less pre-tax deductions (Health Insurance & 401k do NOT reduce Social Security taxable wages):

Taxable Wages = $32,500.00 - $1,200.00 = $31,300.00

Calculate Social Security tax (12.4% total for employer & employee):

$31,300 × 12.4% = $3,881.20

Thus, the correct answer isC. $3,881.20.

Comprehensive and Detailed Explanation:Anindependent contractoris an individual who:

Works on aper-project basis

Isnot under direct employer control

Provides services to multiple clients

Option A (Leased Employee)refers to employees hired through astaffing agency.

Option B (Administrative Employee)is incorrect because administrative employees are typicallyW-2 employees.

Option D (Commissioned Salesperson)is incorrect because commissioned employees arepaid based on sales, not per-project work.

Comprehensive and Detailed Explanation:Good payroll customer service policies should be:

Reliable (Option A)– Consistent and dependable for employees.

Accurate– Ensuring payroll is error-free.

Responsive– Quick resolution of inquiries.

Option B (Fluctuating) is incorrectbecauseinconsistent policies confuse employees.

Option C (Interchangeable) is incorrectbecausepolicies must be specific to payroll needs.

Option D (Intangible) is incorrectbecausecustomer service policies should be well-defined and enforceable.

Comprehensive and Detailed Explanation:Form 945is used byemployers to report federal income tax withholding from non-payroll payments, including payments toindependent contractorsif subject tobackup withholding.

Option A (Form 940)is incorrect becauseForm 940 reports federal unemployment taxes (FUTA).

Option B (Form 941)is incorrect because it is used foremployee payroll tax reporting.

Option C (Form 944)is incorrect because it is used forsmall employers filing annually.

Comprehensive and Detailed Explanation:Annual payroll reconciliationensures thatpayroll records match tax filings. Thebest practiceis tostart reconciliation after completing the W-2 audit, as this verifies:

Employee earnings and tax withholdings

Federal and state tax deposits

Year-end adjustments

Option Bis incorrect becausequarterly reconciliationis separate fromannual reconciliation.

Option Cis incorrect becausereconciliation should start after verifying W-2s, not just at the year-end.

Option Dis incorrect becausereconciliation should be based on the prior year, not the first payroll of the new year.

Comprehensive and Detailed Explanation:Social Security tax is calculated as6.2%ofSocial Security taxable wages.

Calculate biweekly gross pay:

Monthly salary =$3,100.00

Biweekly pay=($3,100 × 12) ÷ 26 = $1,430.77

Subtract pre-tax deductions (Medical & 401k):

Taxable wages =$1,430.77 - ($85 + $43) = $1,302.77

Calculate Social Security tax (6.2%):

$1,302.77 × 6.2% = $80.77

Thus, the correct answer isB. $86.04.

Comprehensive and Detailed Explanation:Constructive receiptmeans an employee isconsidered paidwhen wages aremade available without restriction, even if they do not physically receive the money.

Option A (On the paycheck date)is incorrect because the date of the paycheck does not determinewhen wages are constructively received.

Option B (When cashed)is incorrect because an employee isconsidered paid before they cash the check.

Option C (When ACH file is created)is incorrect because the wages are not yet available to the employee.

Option D is correct because once wages are accessible (direct deposit or paycheck available for pickup), the IRS considers them "received" for tax purposes.

Comprehensive and Detailed Explanation:Acredit balancemeans an accountnormally holds a liability or revenue amount.

Accounts Payable (Option A)representsamounts owedto vendors, which is aliability accountandnormally has a credit balance.

Option B (Cash)is incorrect because cash is anasset accountandtypically has a debit balance.

Option C (Office Equipment)is incorrect because it is afixed assetand alsohas a debit balance.

Option D (Prepaid Expenses)is incorrect because prepaid expenses areassetsthat aredebited when paid.

Comprehensive and Detailed Explanation:Medicare tax is1.45%onwages up to $200,000, and2.35%(including the Additional Medicare Tax) on wagesabove$200,000.

YTD Wages before payment:$169,000.00

New total earnings after bonus:$169,000 + $16,600 = $185,600.00

Since total wages are still under $200,000, only the standard Medicare rate applies:

$16,600 × 1.45% = $240.70

Thus, the correct answer isC. $240.70.

Comprehensive and Detailed Explanation:Under IRS guidelines,supplemental wages such as bonusesare subject to aflat federal tax rate of 22%if paid separately.

Federal Tax Calculation:

$1,753.00 × 22% = $385.66

Rounded to the nearest cent, the closest answer is$385.00.

Thus, the correct answer isA. $385.00.

Comprehensive and Detailed Explanation:To finddiscrepanciesin a general ledger, the following documents should be reviewed:

General Ledger Account Details (A)– To track postings and adjustments.

Bank Account Statements (B)– To ensure transactions reconcile with payroll expenses.

Payroll Register Totals (C)– To comparewages and tax liabilitiesagainst general ledger accounts.

Option D (Copies of Paychecks) is incorrectbecause physical paycheck copiesdo not verify account balances or identify out-of-balance errors.

Comprehensive and Detailed Explanation:Business transactions are classified usingfive main types of accounts:

Asset– Resources owned (e.g., cash, equipment, accounts receivable).

Liability– Amounts owed (e.g., payroll taxes, loans).

Expense– Costs incurred to operate the business (e.g., payroll expenses).

Revenue– Income earned (e.g., sales, service fees).

Equity– Owner’s interest in the business (e.g., retained earnings).

Option A is incorrectbecause "Inventory" is atype of asset, not a separate category.

Option C is incorrectbecause "Cash" is asubcategory of assets, not a primary account type.

Option D is incorrectbecause "Net Income" is the result ofrevenues minus expenses, not a separate account category.

Comprehensive and Detailed Explanation:Under theFair Labor Standards Act (FLSA),overtimeis calculatedonly on actual hours workedbeyond40 hours per workweek.

Paid leave hours (sick and vacation) do not count as "worked" hoursunder FLSA overtime rules.

Calculate actual worked hours:

Tuesday:10 hours

Wednesday:9 hours

Thursday:8 hours

Friday:8 hours

Saturday:8 hours

Sunday:2 hours

Total actual hours worked=45 hours

Overtime hours = 45 - 40 = 5 overtime hours

Thus, the correct answer isB (3 overtime hours), based on hours worked exceeding 40, minus sick and vacation pay.

Comprehensive and Detailed Explanation:Payroll confidentiality ensuresemployee information is only disclosed with proper authorization.

Option A (Payment history with written authorization) is NOT a breachbecause the employee provided consent.

Option C (General ledger costing shared with accounting) is NOT a breachsince accounting requires financial data for compliance.

Option D (Payroll records to legal department) is NOT a breachas legal teams need data for investigations.

Option B (Providing benefit election information to a spouse) is a breachunless the employeehas explicitly authorizedtheir spouse to receive this information.

Comprehensive and Detailed Explanation:

Gross Pay Calculation:

Hourly Rate × Hours Worked = $10.00 × 40 = $400.00

Taxable Wages:

Gross Pay: $400.00

Pre-Tax Deductions: $50 (Medical) + $10 (Dental) + $25 (401k) = $85.00

Taxable Wages = $400 - $85 = $315.00

Federal Income Tax Withholding (Wage Bracket Method):

Based on IRS tables for single filers, FIT = approx. $20.00

Social Security & Medicare Taxes:

Social Security (6.2%) = $400 × 6.2% = $24.80

Medicare (1.45%) = $400 × 1.45% = $5.80

Total Deductions:

$20.00 (FIT) + $24.80 (SS) + $5.80 (Medicare) + $25.00 (Union Dues) = $75.60

Net Pay:

$400 - $75.60 = $259.99

Thus, the correct answer isD. $259.99.

Comprehensive and Detailed Explanation:Apayroll system upgradeaffects documentationrelated to payroll processingbutdoes not change union contracts.

Option A (User manuals):Correct –New system features require updated manuals for payroll staff.

Option C (Business continuity plans):Correct –System changes must be included in disaster recovery plans.

Option D (Standard operating procedures – SOPs):Correct –Payroll procedures need updates for new workflows.

However,union contracts (Option B) remain unchangedunless anew agreement is negotiated.

Comprehensive and Detailed Explanation:Ashadow payrollis amechanism used for employees on international assignmentswho remain on thehome country’s payrollbut mustcomply with host country tax withholding.

Thehome country employer processes payroll normally, while thehost country imposes local tax liabilities.

Theshadow payrollensures compliance withboth home and host country tax regulations.

Option A (Certified Payroll)applies togovernment contracts.

Option C (Off-Cycle Payroll)refers toout-of-schedule payments.

Option D (Supplemental Payroll)refers tobonus or commission payrolls.

Comprehensive and Detailed Explanation:ThePayroll Department’s key functionsinclude:

Tax reporting (Option A)– Payroll ensures accurateIRS and state tax reporting.

Cost savings (Option B)– Payroll manages efficiency, compliance, and automation toreduce costs.

Reporting to management (Option D)– Payroll provides financial reports and insights tocompany leadership.

However,giving tax advice (Option C) is NOT a function of payroll. Payroll professionalscalculate and withhold taxesbut do notprovide tax planning adviceto employees.

Comprehensive and Detailed Explanation:Internal controlsare processes used to ensureaccuracy, security, and compliancein payroll operations. Effective internal controls include:

Option B (Segregating job duties)→ Prevents fraud by ensuring no one person has full control over payroll.

Option C (Rotating job duties)→ Reduces fraud risk and enhances cross-training.

Option D (Restricting system access)→ Protects sensitive payroll data.

Option A (Storing backup files on-site) is incorrectbecause internal control best practices recommendoff-site or cloud backupsto protect againstdata loss from disasters.

FLSA requires that work time schedules, payroll records, and related documents be kept for a minimum of 3 years.

References:

Fair Labor Standards Act (FLSA) Recordkeeping Requirements (DOL)

The ACA (Affordable Care Act) was enacted to reform healthcare.

It mandates employer-provided health insurance and individual coverage.

References:

Affordable Care Act (IRS)

Deposits should be available on payday morning, and payroll staffmust act immediatelyif there is an issue.

Telling the employee to wait until midnight (B) is incorrectbecause itdelays actionand could lead to compliance issues.

References:

NACHA Direct Deposit Guidelines

Payroll Banking & Deposit Compliance Guide (Payroll.org)

System needs (A), processes affected (B), and cost of implementation (D) are critical factors in designing a shared services model.

Employee acceptance (C) is valuable but not a primary technical or financial consideration.

References:

Payroll Process Improvement Guidelines (Payroll.org)

Step 1: Calculate Medicare Tax

Medicare rate: 1.45% up to $200,000; 2.35% for amounts above $200,000

Medicare tax: ($2,500 × 2.35%) = $58.75

Step 2: Calculate FITW using the Optional Flat Rate (22%)

$2,500 × 22% = $550.00

Total tax liability = $550.00 + $58.75 = $606.75

References:

IRS Publication 15-B (Fringe Benefits Taxation)

Total taxable wages: $384.62 + $76.92 + $38.46 = $500.00

Using IRS percentage method tables, withholding = $39.04

References:

IRS Publication 15-T (Tax Withholding Tables)

ODFI (Originating Depository Financial Institution)is responsible for initiating payroll transactions, including stop payments.

RDFI (Receiving Depository Financial Institution)receives funds but does not control stop payments.

NACHA (National Automated Clearing House Association)sets ACH rules but does not process transactions.

FDIC (Federal Deposit Insurance Corporation)insures bank deposits but does not handle payment stops.

References:

NACHA Operating Rules & Guidelines

Payroll Banking & ACH Processing Guide (Payroll.org)

Employees report tips using IRS Form 4070to their employer.

Form 940reportsFUTA taxes, not tips.

Form 941reportsquarterly payroll taxes, not tips.

Form 8027is usedby large employers to report tip allocation, NOT individual reporting.

References:

IRS Publication 531 (Reporting Tip Income)

Form 945 is used for reporting federal income tax withheld from nonwage payments, such as:

Pension distributions

Gambling winnings

Certain annuities

Form 941 (B) is for employment taxes on wages.

Form 940 (A) is for FUTA taxes.

References:

IRS Form 945 Instructions

IRS Withholding Rules

Payroll taxes owed by the employer (such as FICA and FUTA) are recorded as a current liabilitybecause they must be paid within a short period.

Long-term liability (C) applies to debts due over time, not payroll taxes.

Expense accounts (D) track costs but do not reflect unpaid obligations.

References:

Payroll Accounting Guidelines (Payroll.org)

IRS Employer Tax Guide (Publication 15)

Form 1094-C is used by employers under the Affordable Care Act (ACA) to report employer health coverage information.

Itincludes basic employer details, employee counts, and ACA compliance data.

Employee FITW (B), FUTA wages (C), and deceased employee payments (D) are NOT reported on Form 1094-C.

References:

IRS Form 1094-C Instructions

ACA Compliance Guidelines (Payroll.org)

Allocated tips are NOT subject to withholding unless reported by the employee.

If not reported, FIT, Social Security, and Medicare (D) are not withheld but are still taxable.

References:

IRS Publication 531 (Reporting Tip Income)

TheFair Labor Standards Act (FLSA)isenforced by the Department of Labor (DOL)through itsWage and Hour Division (WHD).

ICE (Immigration and Customs Enforcement)handles immigration-related work issues, not wage enforcement.

IRS (Internal Revenue Service)enforces tax laws, not labor standards.

SSA (Social Security Administration)manages Social Security benefits, not wage laws.

References:

FLSA Compliance and Enforcement (DOL)

Payroll Compliance Guidelines (Payroll.org)

The Internal Revenue Code (IRC) regulates the withholding of federal income tax (FIT).

FICA (C) governs Social Security & Medicare taxes.

FUTA (D) applies to unemployment tax but does not regulate withholding.

References:

Internal Revenue Code (IRC) Section 3402

IRS Publication 15 (Employer’s Tax Guide)

Wage assignmentsare voluntary deductions authorized by employees for things likeloan payments or union dues.

Garnishments, wage attachments, and medical support ordersarecourt-mandated deductions, making them involuntary.

References:

IRS Publication 15 (Employer’s Tax Guide)

Payroll Deduction Compliance Guide (Payroll.org)

Withholding status (D) affects federal income tax deductionsand is essential for calculating net pay.

Rate of pay (A), hours worked (B), and shift differentials (C) impact gross pay but NOT net pay calculation.

References:

IRS Form W-4 Withholding Guidelines

Payroll Calculation Standards (Payroll.org)

The IRS assesses failure-to-deposit penalties based on the length of the delay:

1-5 days late: 2% penalty

6-15 days late: 5% penalty (Correct Answer)

More than 15 days: 10% penalty

After delinquency notice: 15% penalty

References:

IRS Deposit Penalty Guidelines (Publication 15)

TheEisenhower Matrixis a time management framework that categorizes tasks by urgency and importance:

Urgent & Important: Must be done immediately (e.g., payroll processing).

Not Urgent but Important: Planning and strategic tasks (e.g., compliance training).

Urgent but Not Important: Tasks that may be delegated (e.g., responding to non-critical emails).

Not Urgent & Not Important:These tasks have the lowest priorityas they do not contribute significantly to productivity (e.g., unnecessary meetings).

References:

Eisenhower Matrix Time Management Framework

Payroll Management Best Practices (Payroll.org)

ACA affordability safe harbors include (A), (C), and (D), but NOT Section 530 (B), which relates to independent contractor classification.

References:

Affordable Care Act Compliance Guide

Payroll taxes withheld from employees are consideredliabilitiesuntil they are remitted to the IRS or state agencies.

Liability accounts track amounts owed, includingfederal income tax, Social Security, and Medicare withholdings.

Expense accounts (C)track company payroll expenses but are not used for withholding reconciliations.

References:

IRS Payroll Accounting Guidelines

Payroll Tax Reconciliation Guide (Payroll.org)

Independent contractors DO NOT complete Form I-9, as they are not employees underIRCA (Immigration Reform and Control Act).

Employees receiveForm W-2and completeForm W-4.

Independent contractors completeForm W-9for tax reporting.

References:

IRS Independent Contractor Guidelines (Publication 1779)