Flashcards in Core Payroll Concepts Deck (116):
Define an "independent contractor"
A payer has control of the work done by an independent contractor, and not the means and methods of finishing the job.
Define a "Statutory employee" (all 3)
1. A driver -(other than milk)
2. A life insurance sales agent
3. An individual who works at home on employer supplied goods on work that I specified and must be returned to the employer.
What is a reasonable basis test?
A test established by the IRS to assist employers in determining whether their labor force should be treated as employees or independent contractors.
What is the "Judicial Precedent Safe Haven"?
A taxpayers ability to use previous legal rulings as a basis to determine if a person was an employee or I.C. (Within reason).
What is the "Past Audit Safe Haven"?
When a taxpayer can rely on the results of a prior IRS audit to establish if the person is an employee or independent contractor.
What is "Industry Practice Safe Haven"?
The taxpayer is relying on recognized industry practices of a major industry in which he or she participates as designating a worker as a contractor
Biweekly rate of pay calculation
Annual salary / number of weeks to be paid x 2 = Biweekly rate of pay
Fluctuating workweek is also known as?
Straight time compensation
What is "fluctuating workweek"?
A non exempt employee with a fixed salary regardless of hours worked, whether over or under forty hours.
How do employers qualify to pay according to a fluctuating workweek?
The workweek must actually fluctuate over and under forty hours and the compensation received for the hours worked must never reduce the employees compensation to less than minimum wage ($7.25).
Definition of an "employee"
Anyone who performs a service for you is generally your employee if you can control what work is accomplished and how it is accomplished.
Definition of a "workweek"
A fixed and regularly recurring 168 hour period or 7- twenty-four hour periods that occur consecutively. This does not necessarily match the calendar week.
According to FLSA, what 3 requirements are to be followed by an employer in order to change the work week?
1. The change initiated is to be intended to be permanent.
2. The change may not be a regular occurrence.
3. The change can not be intentional to avoid the OT rules established under FLSA.
What does FLSA stand for?
Fair Labor Standards Act
True or False: Under FLSA employees are not required to provide their employees with paid meal and rest breaks.
Can employers round hours worked by employees?
Yes, to the nearest quarter of an hour.
What are fair rounding techniques, as defined under FLSA?
FLSA establishes that between 1 and 7 minutes of an hour may be rounded down, but 8 to 14 minutes must be rounded upwards.
Which types of employees can be compensated with time off for overtime worked up to 480 hours?
Public sector employees:
law enforcement, seasonal activity employees, emergency responders and firefighters.
What are "White-collar exemptions"?
Employees who are executives, administrative, professional, and some types of computer professionals.
What is the legal minimum age for those working in radio, television, movies or theatrical productions; delivering news papers; babysitting or minor chores around a private home?
There is no minimum age with those types of jobs.
Using the percentage method, how do you calculate federal withholding?
1. Determine gross wages.
2. Find the allowance amount from the IRS table according to frequency. Multiply by number of allowances.
3. Subtract the allowance amount from the employees gross wages to calculate taxable wages.
4. Determine the amount of fed tax using the appropriate percentage table.
2015 SS wage base
2015 wage base for additional Medicare
$250,000 for married filing jointly
$125,000 for married filing separately
$200,000 for all others
What is "Backup withholding"?
A requirement by the IRS of the withholding of taxes on certain types of income, if the pages does not provide his or her SSN or TIN. Most common for 1099's.
What is the federal backup withholding rate?
Are public-sector employees required to pay into SS?
No. They can opt out and contribute to FERS (Federal employees retirement system).
What is the total FUTA tax rate?
What is the maximum FUTA credit percentage?
What is the net FUTA rate in states without any credit reduction?
What is form W-5?
EIC advance payment certificate
What forms should employers have completed by their employees to verify the employee is eligible to work in the U.S.?
Forms W-4 and I-9
What does EFTPS stand for?
Electronic Federal Tax Payment System
What is the purpose of form I-9?
The form serves as documentation that the employee has presented the acceptable number and types of verification documents to the employer, as proof the employee is authorized to work in the U.S.
What is form SS-4?
Application for Employer Identification number - for a sole prop, corp, partnership, estate, trust and other entities.
What is form SS-5?
Application for a Social Security Card.
What is form SS-8?
Determination of worker status for purposes of federal employment taxes and income tax withholding - clarification of the tax status of a worker
What is the purpose of form W-2?
For employees to report the employees earned income and taxes for a calendar year.
List all 6 copies of form W-2.
Copy A- SSA
Copy B- Employee fed tax return
Copy C- Employee records
Copy D- Employer copy
Copy 1- City, state or local agency
Copy 2- Employee state return
What is form W-2C and the purpose?
Corrected wage and tax statement.
Used to correct originally filed W-2.
When is form W-3 NOT required?
Form W-3 is not required if the employer files W-2's electronically.
What is the purpose of form W-3?
Form W-3 summarizes the transmittal of paper copies of form W-2, to the SSA
Purpose of form W-4
Employees withholding allowance certificate is for the employee to document the amount of federal tax withholding to be withheld by the employer.
What is form W-4p?
Withholding certificate for pension or annuity payments
What is form W-4p for?
For pensioners and annuitants to document to the payer the amount of funds to be withheld for federal income tax.
What is form W-4s?
Request for FIT withholding from sick pay to a third party payer.
What is form W-9?
Request for taxpayer identification number (TIN) and certification. (1099 information)
Payments subject to backup withholding include: (hint: 8 types)
2. Tax-exempt interest
4. Broker/ Barter exchange transactions
7. Non employee pay (1099)
8. Certain payments from fishing boat operators
What is form 843?
Claim for refund and request for abatement
What is form 843 used for?
To request a refund or an abatement to be granted for certain taxes, penalties, interest, fees and some additions to taxes previously paid, when an amendment version of a form does not exist.
What is the FUTA form number?
Form 940- Employers annual federal unemployment tax return
True or False: form 941 contains information on backup withholding.
False- backup withholding is reported on form 945
How often is form 944 filed?
What is form 943?
Employer's annual federal tax return for agricultural employees
Purpose of form 945
To report FIT withheld from pensions, military retirement, Indian gaming profits, voluntary withholding of certain gov't payments and backup withholding (1099).
What is form 1042?
Annual withholding tax return for U.S. Source income of foreign persons
What is the purpose of form 1042?
For employers to report to the IRS the amount of FIT withheld on certain income paid to nonresident aliens, foreign partnerships, foreign corps, foreign estates and foreign trusts
What is form 1042-S?
Foreign person's U.S. Source income subject to withholding
What is the purpose of form 1042-S?
To report all income subject to withholding for foreign persons.
What is form 1042-T?
Annual summary and transmittal of forms 1042-s. (Similar to W-3).
What is federal minimum wage?
$7.25 per hour
What is the federal minimum wage for overtime?
$10.88 per hour
What is form 1096?
The summary of forms 1099.
What is form 1099-R?
Distributions from pensions, annuities, retirement or profit sharing plans, IRA's, Insurance contracts, etc...
What is form 1099-MISC?
What information is on form 1099-MISC?
Form 1099-MISC is used to report certain amounts paid to and FIT withheld from each recipient, over $600.
What is form 8233?
Exemption from withholding on compensation for independent (and certain dependent) personal services of a nonresident alien individual
What is a withholding agent?
A person or entity that is required to withhold tax. The withholding agent bears ultimate responsibility for the taxes that are required to be withheld.
True or false: disclosure of a rate of pay and/or deduction information of an employee is seen as a breach of confidentiality.
True or false: disclosure of the presence of a medical condition of an employee to a person not authorized by the employee or as per the HIPAA permitted disclosure list, is NOT a breach of confidentiality.
False- it is considered a breach of confidentiality
Where is the "Payroll professionals tax center"?
This is located on the IRS website.
What is "Shared Services environment"?
A shared services environment is an organization serving one or multiple entities that provides common administrative services. (Ex: EAO with edit ability, Self service, zenefits)
What is SOX?
Sarabande-Oxley Act (2002) was intended to enhance existing securities regulation in order to mitigate fraudulent accounting practices by public companies.
What are the 2 key requirements of SOX?
1. Certification under penalty of criminal action, the accuracy of the financial stages of the company by certain officers.
2. A requirement that the internal controls and related business processes of a company be documented and certified as accurate by a registered public accounting firm
What are the SOX compliance requirements for payroll?
1.Schematic process flows for each function within the payroll operation.
2. Written procedures for each step of a business process.
3. Record keeping requirements are in compliance, organized and accessible.
4. Proper segregation of duties is in place and enforced.
5. Gals and risks in internal controls have been identified and if not resolved, a plan exists for doing so.
What is NACHA?
The national automated clearinghouse association is a non profit organization that acts and the self-regulatory body for the automated clearinghouse (ACH) process of electronic payments.
NACHA is in charge of development, administration and governance of the ACH network.
Outline the ACH process
1. Employer initiates electronic file containing the payment information.
2. Originating bank receives file from the employer and initiates processing through the ACH network.
3. ACH settled the transactions between the different banks.
4. Employee bank posts funds to employee accounts
5. Employee can access funds
What is the goal of the pre notification process?
A "prenote" is a zero value transaction that is processed through the ACH system as a test of validity of the bank information provided by the employee.
Basically- testing to make sure DD will post as intended.
According to the error correction rules, how many days are allowed to correct a direct deposit transaction?
Within 5 days of the original DD transaction.
What regulation specifies that "pay cards" are subject to the same regulatory requirements as a direct deposit?
Unclaimed wages are considered a form of abandoned property. Therefore, payments which are not settled to the employee____________
Must be reissued.
Days in which the Federal Reserve system is closed, are considered ________________
Federal banking holidays
Which principal governs the timing of tax withholding form a payroll disbursement?
Constructive receipt and payment
True or False: The FLSA and IRC address frequency and methods of payments to employees.
False- this is left tithe states to regulate.
What is the "common law test"?
A set of factors applied to determine whether a person is considered an employee or independent contractor.
Key factory's for classifying employees under DOL standards. (hint:6 factors)
1. Work performed is integral part of employers business.
2. Workers managerial skills affect their opportunity for profit and loss.
3. Workers investment in facilities and equipment.
4. The worker's skill and initiative- (working independently or depending on employer)
5. The permanency of the workers relationship with employer.
6. The nature and degree of control by the employee
Exempt employees are bona fide ____________
Executive, administrative, professional, computer, and outside sales employees paid on a salary basis, no less than $455 per week ($23,660 a year). These employees are exempt from OT laws.
Definition of "non exempt employees"
Those who are subject to receiving overtime pay when worked more than 40 hours in a week.
List the 2 types of "statutory non-employees"
1. Real estate agents
2. Direct sellers
Payments based on sales instead of hours
True or false: meal and rest breaks are required to be paid under FLSA
False- FLSA does not require employers pay for meal breaks or rest breaks.
For those non exempt employees in the nursing field. Minimally must be paid OT for hours over 80 in a 14 day period. Employers can also agree to pay OT for hours over 8 in a day.
FLSA governs _________
The standards for the basic minimum wage, overtime pay, and child labor
If a non public sector employee receives compensatory time off in lieu of overtime pay, how soon after the employee receives the PTO must they use it by?
They must use it by the 26th pay period after the pay period in which the compensatory time off was earned.
What is the "public service contract act"?
SCA requires contractors and subcontractors performing services on prime contracts in excess of $2,500 to pay service employees in various classes no less than the wage rates and fringe benefits found prevailing in the locality or contained in a predecessors contractor's collective bargaining agreement. (prevailing wage)
Under the FICA student exemption, who is exempt ?
Taxes do not apply to service performed by students employed by a school, college, or university where the student is pursing a course of study.
FICA public sector exemption
Public employees fall into 3 categories
1. Subject to SS through mandatory coverage
2. Subject to SS through a section 218 agreement (Sec 218 agreement is between the SSA and the state's SS administration)
3. Exempt from SS since they are covered by a public retirement plan.
Railroad retirement tax act and requirements
Rail road tax act taxes funds railroad worker retirement benefits. Collections of these taxes are the responsibility of the IRS, railroad retirement board and an independent governmental agency
5 primary resources for guidance on employment tax regulations
1. The congressional record
2. The federal register
3. Internal revenue bulletin
4. Cumulative bulletins
5. SSA/IRS reporter
The check date is also known as the date of _________
Tip Credit Law
FLSA permits an employer to take a tip credit towards its minimum wage obligation for tipped employees equal to the difference between the cash wage ($2.13 min) and the federal minimum wage.
Current maximum tip credit
$5.12 per hour ($7.25 - $2.13)
What are the tip credit requirements?
The employer must provide the employee with the following information before using the tip credit:
1. The amount of cash wage the employer is paying - minimum of $2.13 p/h
2. The additional amount claimed by the employer as a tip credit.
3. The tip credit cannot exceed the actual amount of tips received.
4. All tips received must be retained by the employee (unless in a valid pool tipping agreement).
5. The tip credit will not apply to any tipped employee unless informed of the provisions.
What makes a qualified plan?
The provisions in the plan document must satisfy the requirements of the code and those plan provisions must be followed.
What is an example of a qualified plan?
401(k), 403(b), Simple IRA plans, Sep-IRA plans, Section 125, etc
What is a non qualified plan?
Post tax contributions. The plan is not eligible for tax deferral benefits.
What are the 4 types of non- qualified plans ?
Deferred compensation plan (SERP's), executive bonus plans, group carve out plans, split dollar life insurance plans
What is a fringe benefit?
A form of lag for the performance of services. (ex: HSA, meals, GTL)
Calculation to gross up wages
100% - Total tax rate = net %
Net pay / net % = Gross amount
Example : net $1000, total tax rate 12%
100% - 12% = 88%
$1000/.88 (88%) = 1,136.36 gross
What form is used to calculate Adoption expenses?
Form 8839-qualified adoption expenses
What is form 8839?
Qualified adoption expenses
What are some of the qualifying expenses covered under adoption assistance!
Adoption fees, court costs, attorney fees, traveling expenses, and other expenses directly related to the legal adoption of an eligible child.
What is the 2015 adoption tax credit limit?
What is "Non Discrimination testing"?
A test to ensure a benefit plan does not discriminate in favor of highly compensated employees and key employees with respect to eligibility, contributions or benefits
What does ACA stand for?
Affordable care act AKA Obamacare.
What is the EEO-1 report?
Employer information report
What is the EEO-1 report for?
It is a compliance survey report, mandated by federal law which requires company employment data to be categorized by race\Ethnicity, gender and job category.