CPP Study Questions

What are the 5 empowerment process steps?

1) establish the desired results; 2) provide guidelines; 3) identify resources available to accomplish the task; 4) hold people accountable and 5) identify consequences.

Employee and Employer Coverage (FLSA)

2 Types: Enterprise coverage and Individual coverage.

Under the FLSA, how long should an employee's work time schedule be retained?

2 years.

A company understated a payroll tax liability by $15,000. The IRS determined that this understatement was due to negligence, not fraud. The maximum penalty the IRS could assess is?

20% of the underpayment.

Under IRS regulations, how many years must an employee's address be retained?

4 years

Which form notifies an employer that an employee's wages have been released from a levy?

668 - D

Form 1099-MISC

A year end form provided to an independent contractor stating how much the contractor was paid for the services rendered if the total was at least $600.

Compensatory Time Off

Because the workweek is the FLSA's basic unit of time used in determining whether overtime pay is due an employee, employers generally cannot pay overtime earned in one workweek by giving the employee time off from work in another workweek, even if 1 1/2 hours off are given for each overtime hour worked. But there are exceptions to the general rule.

Employee authorization for direct deposit

Before an employer can begin direct deposit for an employee, the employee must agree to allow the electronic transfer of funds from the employer to the employee with a direct deposit authorization. Under the NACHA rules, authorizations to make credit entries to employees' accounts do not have to be in writing. Authorizations of debit entries must be in writing and signed or similarly authenticated by the employee.

Invalid Social Security Numbers

Beginning with the number "9" 666 or 000 in positions 1-3 00 in positions 4-5 0000 in positions 6-9 123-45-6789 Verify social security numbers online can verify up to 10 names and SSNS online and receive immediate results or upload a batch file of up to 250,000 and usually receive result by the next business day.

Right to Control 3 General Categories

Behavioral Control, Financial Control & Type of Relationship.

What is the owner's equity calculation?

Owners equity = Assets - Liabilities

Which account is generally listed first on a corporate balance sheet?

Prepaid expenses

What are the three essential functions, the three "P's", of payroll management?

Process, People, Proficiency.

Which of following is one of the five steps of empowerment?

Provide guidelines

Military Pay

Differential military pay Compensation paid to employees while they are on active military duty is subject to different tax rules depending on the type of tax involved and the length of the employee's service. These are referred to as differential wage payments and they are wages for purposes of federal income tax withholding. The payments are taxed as supplemental wages because they are not payments for services for the civilian employer in the current payroll period. These payments are defined as Any payment made by an employer to an employee or any period during which the employee is performing service in the uniformed services while on active duty for more than 30 days, and Any payment that represents all or a portion of the wages that the employee would have received from the employer if the employee were performing services for the employer. This does not apply to social security, Medicare, and FUTA. For those taxes, the following rules apply: If the supplemental military pay is provided while the employee is on temporary assignment with the state National Guard or the Armed Forces Reserve, it is wages subject to social security, Medicare, and FUTA taxes If the supplemental military pay is provided while the employee is on active service with the U.S. Armed Forces or on an indefinite assignment with the state National Guard, the IRS treats the employment relationship as broken and the

What is a disadvantage of EFT when compared to issuing a paper checks?

Difficult to stop payment.

An employer has received multiple attachments for an employee. The orders were received in the following sequence: Federal tax levy, consumer garnishment, and child support payment order. In which order are the attachments applied against the employee's wages?

Federal levy, child support payment, consumer garnishment. Child support would have taken priority if it had been received prior to the federal levy.

Allocated tips

Food and beverage establishments with more than 10 employees must allocate tips if the amount of tips reported by employees for a payroll period is less than 8% of the establishment's gross sales subject to tips for that period. The difference between the amount reported by the employees and 8% must be allocated to the employees and reported on the employees' W-2 forms in Box 8.

Wage-Bracket Method - Tax Withholding

For off-cycle checks cut by employers, the easiest withholding method to use may be the wage-bracket method. Using this method, the amount to withhold is taken directly from wage-bracket tables issued by the IRS in Publication 15, Circular E, Employer's Tax Guide. There are two tables for each of following payroll periods (one for single and one for married persons): weekly, biweekly, semimonthly, monthly, and daily or miscellaneous.

Form I-9 Retention

Employers must keep completed I-9 forms for at least 3 years from the date of hire or 1 year from the date of termination, whichever is longer. All newly hired employees must show evidence of their identity and right to work in the U.S.

Guaranteed Wage Payments

In some industries, employers have entered into agreements with employees to pay then an annual income or guarantee them a job even when no work is available. Payments provided under such guaranteed annual wage plans are wages subject to federal income tax withholding and social security, Medicare, and FUTA taxes.

Flexible Spending Arrangements

Many cafeteria plans offer another type of benefit program known as a flexible spending arrangement or FSA. FSAs give employees the chance to pay for certain covered health care, dependent care, and adoption expenses with pre-tax dollars provided through salary reduction As the employees incur covered expenses, they are reimbursed up to the amount that will be contributed during the plan year through salary reduction. Health care FSAs are governed rules, which include, but are not limited to: Elections cover a full plan year Salary reductions are capped. Employees are limited to making $2,550 of salary reduction contributions in a taxable year to their health care FSA. No deferred compensation ("use it or lose it") - Any amount in a health FSA that remains unused at the end of the plan year (or the end of a grace period if applicable) is forfeited by the employee. Plan can allow a grace period up to 2 ½ months

Between Forms W-2 and Forms 941, the IRS and SSA reconcile?

Medicare tax withholding.

What payroll issues is governed only by state agencies?

Method of payment, timing of final payment to a terminated employee, escheat laws.

What does the FLSA cover?

Minimum wage and overtime requirements; record-keeping requirements; restrictions on child labor and equal pay for equal work.

Child labor restrictions for minors 14 and 15.

Minors 14 and 15 can work in a limited number of nonhazardous jobs in retail, food service, and gasoline service establishments. They cannot work during school hours nad are limited to working 3 hours a day and 18 hours a week when school is in session. They are limited to 8 hours a day and 40 a week when school is not in session. They also can work only between 7 am and 7 pm (7am and 9pm from June 1 through Labor Day).

Sick Leave Pay

Most employers provide their employees with paid sick leave or sick days so they will receive their regular salaries for brief absences from work due to illness or injury. Payments are made from the regular payroll account and are taxable wages subject to federal income tax withholding and social security, Medicare, and FUTA taxes when paid.

Payment on Termination

Most states have a separate set of rules governing when employees must be paid when they separate from employment, either through discharge, layoff, or resignation.

Reporting moving expense reimbursements

Moving expenses reimbursements or payments that qualify as a nontaxable fringe benefit should not be reported in Box 1, 3, or 5 of Form W-2. Qualified moving expenses paid by an employer to a third party are not reported at all on the employee's Form W-2 Qualified moving expense reimbursements paid directly to the employee must be reported in Box 12, with Code P. Amounts reimbursed by an employer that do not qualify as a nontaxable fringe benefit are wages and must be included as such in Boxes 1,3, and 5 of Form W-2, with the withheld amounts included in Boxes 2, 4, and 6, but not in Box 12.

Batch processing is?

Not interactive

Originating Depository Financial Institution (ODFI)

ODFI - delivers the file to the ACH Operator The employer prepares an automated file of direct deposit records indicating where the employees' pay is to go. This file is then sent to a financial institution with the ability to process the file, known as the Originating Depository Financial Institution (ODFI).

Directors' Fees

Often companies have a board of directors which may include nonemployees of that company. For nonemployees, the fees paid are not wages subject to federal income tax withholding and social security, Medicare, and FUTA taxes. The director is responsible for reporting such payments on their personal tax return. The employer must report the fees paid to the director on a Form 1099-MISC.

Public Sector Exempt Employees

On the state and local government local, employees who are not subject to state or local civil service laws are exempt from the FLSA if they are: publicly elected officials; persons selected by an elected official to be members of the official's personal staff, if they are directly supervised by the official; persons appointed by an elected official to serve in a policy-making position; persons who are immediate advisers to an elected official on the constitutional or legal powers of the office; and, persons employed by a state or local legislative branch, other than a legislative library or a school board.

Advances and Overpayments

Salary advances (prepaid wages) and overpayments must be included in the employee's income for the payroll period when received and are subject to federal income tax withholding and social security, Medicare, and FUTA taxes at that time. The tax treatment of overpayments depends on the type of tax and when the money is repaid to the employer.

IRS Enforcement Efforts - Employee Classification

The IRS uses several different programs in trying to detect worker misclassifications. The 1099 Matching Program targets individuals who file only one 1099-MISC with their personal tax return. The IRS also will try to spot employees who receive Forms W-2 & 1099-MISC from the same employer in one year.

IRS Penalties - unintentional misclassification of an employee

The Internal Revenue Code (IRC) provides special reduced tax assessments when an employer unintentionally misclassifies an employee as an independent contractor. They are: 1.5% of wages paid for not withholding FIT, doubled to 3.0% if the employer fails to file an information return. 20% of the employee's share of social security and Medicare taxes for not withholding those taxes, doubled to 40% if the employer fails to file an information return.

Qualified Moving Expense Reimbursements

The Omnibus Budget Reconciliation Act of 1993 made significant changes in the rules regarding the taxation of employer-reimbursed moving expenses. More detail will be provided on the tax treatment of job-related moving expenses.

Employee participation in developing a departmental mission statement is important because it?

gives all employees ownership in the process.

Split-dollar life insurance

Under a split-dollar life insurance plan, an employer and an employee join in the purchase of a life insurance contract on the life of the employee subject to a contractual allocation of policy benefits between the two parties.

Leave-Sharing Plans

Under an employer's leave sharing plan, employees donate a certain number of paid leave days, which are then "deposited" in a leave bank. Employees who participate in the plan and have medical emergencies can then use paid days from the bank when their own paid leave has been exhausted. Compensation paid to employees using paid days from the leave bank is wages subject to federal income tax withholding and social security, Medicare, and FUTA taxes.

What phase of in-house system design follows the Development Phase?

User Testing Phase

Vehicle cents-per-mile method

Using this method, the fair market value of an employee's personal use of accompany-provided vehicle is determined by multiplying the IRS's business standard mileage rate by the number of personal miles driven. The business standard mileage rate in 2016 is $.54 (54 cents) per mile. The fair market value of the car cannot exceed $15,900 for cars placed in service in 2016. Note about fuel - the cost of fuel IS included in the cents-per-mile valuation. Therefore, if an employee is paying for the fuel, the employer would reduce the business mileage rate by the fuel rate. Helpful Hint About Fuel Annual Lease Value method assumes the employee pays for fuel If employer pays, add the $.055 per mile Cents-per-mile method assumes the employer pays for fuel If employee pays, subtract the $.055 per mile

Vacation Pay

Vacation pay provided to an employee is taxable and subject to federal income tax withholding and social security, Medicare, and FUTA taxes.

What does the FLSA not cover?

Vacations, sick pay, holiday pay, breaks; how often employees must be paid and payment on termination; hours worked by employees over 16. Even though these items are not covered under FLSA, they are governed under state laws or by other federal laws or regulations.

The first step in resolving a late direct deposit is to?

Verify the account and routing number.

Davis-Bacon Act

Wage Rates for Public Buildings and Works. Under this act, the Secretary of Labor sets prevailing minimum wage standards for laborer and mechanics working on federally financed construction contracts of $2,000 or more.

A payroll manager personally directs the work of her staff. A perfectionist with low tolerance for errors and great pride is the quality service award the department has won for three straight years, this payroll manager's situational leadership style would be described as?

high task, low relationship

An individual with a supportive communication style is described as one who?

is most interested in how an idea will affect other people.

The payroll manager forms a committee to document the department's procedures for handling payroll, tax deposits, quarterly returns, liabilities, direct deposit, and other functions. The task used in forming the committee is defined as?

organizing.

Non Qualified Moving Expenses

What does NOT qualify Reimbursements for or payments of the following common nondeductible expenses are included in the employee's income: Cost of meals while traveling from the old home to the new home Pre-move house hunting expenses Temporary living expenses after starting work in the new location Real estate expenses incurred by the employee in selling a residence in the prior location and/or buying one in the new location.

Sick Pay Under a Separate Plan

When an employee is out for a more extended period of time but is still expected to return to work at some point then wages are usually received through some type of short or long-term disability plans. How much is taxable? Benefits that are attributable to employer contributions or to employee pre-tax contributions through a cafeteria plan are taxable income to the employee. Group insurance plans that are funded by both the employer and the employee are subject to special rules to determine the taxability of the sick payment received. If the employer knows the amount of the premium they paid to the insurance company during the last three years, then the following formula applies: Employee's sick pay x Employer-paid premiums for last 3 years Total premiums paid for last 3 years

Form W-4S

When an employee who is disabled by a non-job-related illness or injury is being paid sick pay by a third-party insurer, no federal income tax will be withheld unless the employee requests it by submitting Form W-4S., Request for Federal Income Tax Withholding From Sick Pay to the third party. The minimum amount that can be withheld is $20 per week, and after the withholding, the employee must receive at least $10.

A company deposited $100,000 it owed in payroll taxes four days after the due date. The company may be subject to?

penalties for late deposit.

A method for identifying phantom employees is?

physical payouts.

The management trait that best fits the empowerment management style is to?

provide guidelines, identify resources and accountability.

A company can lose control over its payroll system by?

relying on verbal communication of policies and procedures.

Payroll documentation should be written?

simply enough to allow payroll functions to be completed with limited assistance.

What requirements governs the frequency of paying employees?

state laws.

The management trait that best fits Covey's principle-centered leadership management style is to?

strive to nurture security, guidance, wisdom, and power.

Two factors of situational leadership are?

tasks and relationships.

Payroll's primary product - the paycheck - must be?

timely and accurate.

In order for teamwork to function correctly, all members of the team must agree?

to support the goals of the team.

US Department of Labor'w Wage and Hour Division

will find an employer-employee relationship where the worker is economically dependent on the employer.

Outplacement Services

Services provided by employer to help employees find a new job after a layoff or reduction in force are excluded from income as a working condition fringe benefit.

Severance or Dismissal Pay

Severance or dismissal pay, which is provided to employees because they were terminated involuntarily through no fault of their own, must be included in the terminated employee's income and is subject to federal income tax withholding and social security, Medicare, and FUTA taxes.

What payments must be considered when calculating an employee's regular rate of pay for overtime purposes?

Shift differentials, non discretionary bonuses, payments in a form other than cash, retroactive pay, on-cal pay, supplemental disability payments, sick leave buyback payments, per diem pay.

Sick Pay

Sick pay can take many forms, but its main purpose is to replace the wages of an employee because of an illness or injury. The tax treatment of such payments depends on several variables, including: Who makes the payments Who bears the insurance risk Who paid the premiums on any insurance involved, and Whether the employee is temporarily or permanently unable to work

What are the requirements that define which records must be retained?

federal and state requirements.

What is one truth of Master file data?

An employer may make electronic copies of all records.

What penalty may be assessed against a company that files its 2016 Forms W-2 electronically with the SSA on May 15, 2017?

$100.00 per Form W-2.

A company deposited $100,000 of its tax liability ten days after the due date. What amount is the penalty for failure to make a timely deposit?

$5,000

What is the 2017 federal minimum wage?

$7.25 unchanged from 2016; youth minimum wage is $4.25; minimum cash wage (tipped employee) is $2.13 and the maximum tip credit is $5.12.

Health Reimbursement Arrangements

A Health Reimbursement Arrangement (HRA) is a type of employer-provided health benefit that: is paid for solely by the employer and not provided pursuant to a salary reduction election or under a §125 cafeteria plan; Reimburses the employee for medical care expenses incurred by the employee and the employee's spouse, dependents, and adult children until the year they reach age 27; and Provides reimbursements up to a maximum dollar amount for a coverage period, with any unused portion of the maximum dollar amount at the end of the coverage period carried forward to increase the maximum reimbursement amount in subsequent coverage periods

Health Savings Accounts (HSA)

A Health Savings Account (HSA) is a tax-favored savings account designed to help employees save for medical expenses while they are employed and into retirement. HSAs may be established by individuals who are covered by a high deductible health plan, which is defined as a plan with annual deductible of at least $1,300 for year 2016 in the case of self-only coverage or $2,600 in the case of family coverage.

What is a liability?

A Liability is a payable. A liability account holds debt that must be paid in the future.

Cafeteria Plans

A cafeteria plan is a popular benefit offered by mid-size and large employers which gives employees a choice from a menu of cash compensation and nontaxable (qualified) benefits. This is a specific type of flexible benefit plan authorized by §125 of the IRC. IRC regulations indicate that when employees may elect between taxable and nontaxable benefits, this ability to elect results in gross income to the employees unless the election is made under a qualified cafeteria §125 plan.

What the Cafeteria Plan Document Must Contain

A cafeteria plan must have a written document laying out the particulars of the plan and it must be intended to be a permanent. The details of what a plan document must contain are listed in the Payroll Source.

Liabilities are defined as?

A claim against the company's assets.

What is a belo-type constant wage plan?

A plan that guarantees a fixed salary for irregular hours that includes a set amount of overtime pay. To qualify: The plan must be agreed to by the employee through an individual contract or collective bargaining agreement; the employee must work irregular hours (with workweeks fluctuating above 40 hours); the contract must guarantee a straight time rate of at least the statutory minimum and an overtime rate of at least 1 1/2 time the regular rate; and, the weekly guarantee must be for not more than 60 hours of work.

Cafeteria Plans - What Benefits Can Be Offered

A plan that offers any nonqualified benefits (some of which are included in the Payroll Source), is not a cafeteria plan, and allowing employees to elect them will result in income to the employees. Some examples of qualified benefits are: Coverage under accident and health insurance plans other than long-term care insurance plans Coverage under dependent care assistance plans Group-term life insurance on the lives of employees Qualified adoption assistance Premiums for COBRA continuation coverage Accidental death and dismemberment insurance Long-term and short-term disability coverage A §401(k) plan Contributions to Health Savings Accounts

Educational Assistance

A popular benefit offered by employers is employer-paid educational assistance. The taxation rules depend upon whether or not the courses are job-related. Job-related education If the employer pays for education that is related to the employee's current job, then it is excluded from income as a working condition fringe benefit if the following conditions are met: 1. The courses must not be necessary to meet the minimum education requirements of the current job. 2. The courses are not taken to qualify the employee for a promotion or transfer to a different type of work. 3. The education must be related to the employee's current job and must help maintain or improve the knowledge and skills required for that job.

High-low substantiation method - Business Travel

A simpler method of calculating per diem allowances is allowed by the IRS, whereby one federal per diem rate is established for hi-cost localities of travel and another rate for all other locations within the continental U.S. (CONUS). Under this high-low substantiation method, the employer may use the high-low per diem rate instead of the individual federal per diem rate of the locality of travel, so long as the allowance is for lodging, meal, and incidental expenses, not just meals and incidentals, and the travel is within continental U.S. (CONUS).

Automated Clearing House (ACH)

ACH - operates under the rules developed by NACHA, the Electronic Payments Association, and processes electronic payments between the ODFI and the financial institutions designated by the employees to receive their payments and coordinates the financial settlement between the participating financial institutions. The ODFI makes sure the file has been prepared correctly, checks for any exceptions and entries for employees' accounts maintained by the ODFI and processes the file through the Automated Clearing House (ACH) network.

The Repayment of overpaid wages by an employee has an impact on what record?

Accounting and tax

FMLA Highlights

Additional information Here are some additional highlights of the FMLA: Employers can require employees to take unpaid leave if the employee has a serious health condition that makes him unable to perform the functions of his position An employee who needs to take leave because of an illness suffered by the employee or the employee's child, spouse, or parent on an intermittent or occasional basis may do so. An employer can require an employee to use paid leave, such as vacation, personal, sick, medical, or family leave as part of the 12-week guaranteed leave. FMLA regulations generally require that the employer notify an employee of his/her eligibility to take FMLA leave within 5 business days after either the employee requests leave or the employer acquires knowledge that the employee's leave may be for an FMLA-qualifying reason. Health insurance benefits the employee enjoyed before the leave must be continued during the FMLA leave on the same basis. Employees returning from leave are entitled to their previous job or one that is "equivalent," with no loss of pay or benefits accruing before the leave.

What is the IRC's definition of wages?

All remuneration for employment, including the cash value of all remuneration (including benefits) paid in any medium other than cash. This means that wages and benefits are generally included in income and are subject to income and employment tax withholding, deposit, and reporting requirements unless the IRC says otherwise.

Bonuses

Amounts paid to employees as bonuses in addition to their usual compensation must be included in the employees' income and are subject to federal income tax withholding and social security, Medicare, and FUTA taxes.

Disaster Relief Payments

Amounts received by an individual as a qualified disaster payment are not included in the individual's gross income.

Form SS-8

An ER can get definitive ruling from the IRS as to a newly hired worker's status as EE or IC by completing Form SS-8. While waiting for the IRS to respond, the ER should treat the worker(s) in question as an employee.

Worker Classification Settlement Program (CSP)

An IRS program that allows examiners and businesses to resolve worker classification cases as early in the enforcement process as possible. One of two CSP settlement offers can be made: 1) if the business has met the reporting consistency requirement, but has no reasonable basis for treating its workers as independent contractors, or has been inconsistent, the offer will be a full employment tax assessment. 2) If the business has met the reporting consistency requirement, and can reasonably argue that it met the reasonable basis and consistency of treatment tests, the offer will be an assessment f 25% of the employment tax liability for the audit year.

Highly Compensated Employee (FLSA)

An employee with total annual compensation of at least $100,00 is an exempt white collar employee.

Non job-related education

An employer can provide non job-related educational assistance up to $5,250 per year without including it in the employee's income. Under IRC §127, if the assistance is provided through an Educational Assistance Program (EAP), any assistance offered which is more than that amount is subject to federal income tax withholding and social security, Medicare, and FUTA taxes.

On-Premises Athletic Facilities

An employer may allow its employees to use an on-premises gym or other athletic facility free of charge without including the fair market value of the use of the employees' income if the following conditions are met: 1. The athletic facility is located on the employer's premises, whether leased or owned by the employer. 2. The athletic facility is operated by the employer through its employees or another entity. 3. Substantially all use of the athletic facility is by employees, their spouses, and their dependent children. 4. The athletic facility is not a resort or other residential facility.

Working Condition Fringes

An employer may offer certain work-related property or services to employees without including their fair market value in the employees' income. Working conditions may include the following: Business use of a company car or airplane Chauffeur or bodyguard provided for security protection Dues and membership fees for professional organizations An employee's subscriptions to business periodicals Job-related education Goods used for product testing by employees use of a demonstration automobile by a full-time care salesperson Outplacement services

Qualified Employee Discounts

An employer may offer discounted goods or services to its employees without adding the fair market value of the discounts to the employees' income if the following conditions are met: 1. The discount on goods cannot exceed the gross profit percentage with the goods are sold to customers. 2. The discount on services cannot exceed 20% of the price at which the services are offered to customers. 3. The goods or services must be offered for sale to customers in the employer's line of business in which the employee normally works. 4. The discount is available on equal terms to each member of a group of employees whose classification does not discriminate in favor of highly compensated employees. 5. Real estate, whether for investment purposes or not, does not qualify for the employee discount. Neither does personal property normally held for investment, such as stocks, bonds, or currency. 6. The term employee includes current and former employees who left because of retirement or disability and their widow(er)s, spouses, and dependent children.

No Additional Cost Services

An employer may offer free services to its employees without including the fair market value of those services in the employee's income if the following conditions are met: 1) The free service is one that is regularly offered for sale to customers in the normal course of the employer's line of business in which the employee works. 2) The employer bears no substantial additional cost. 3) The term employee includes current and former employees who left because of retirement or disability and their widow(er)s, spouses, and dependent children. 4) The service is available on equal terms to each member of a group of employees whose classification does not discriminate in favor of highly compensated employees.

De Minimis Fringes

An employer may provide certain property or services of small value to employees without including the value in the employees' income if the following conditions are met: 1. The value of the benefit is so small that accounting for it would be unreasonable or impracticable. 2. The employer must take into account the frequency with which it provides the benefit to all its employees in making this determination. 3. The term employee means anyone to whom the benefit is provided.

Qualified Transportation Fringes

An employer may provide certain transportation fringe benefits to its employees without including the fair market value of the benefits in their income under certain circumstances. They include: 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; and At least one-half of the vehicle's seating capacity (excluding the driver) is used by employees. The excluded benefit is limited to a value of $255 per month. 2. Transit passes, vouchers, tokens, or fare cards, or reimbursement for them by the employer for up to $255 per month. 3. Parking provided on or near the employer's premises up to a value of $255 per month.

Whole-life insurance

An employer may purchase individual whole-life or straight-life insurance policies for employees (usually done for key managers) or pay the premiums on policies already owned by the employees. A straight-life policy provides two types of benefits: Death benefit - payable at the death of the insured employee equal to the face amount of the policy Savings - a portion of each premium payment is applied toward the savings segment of the policy

Mileage allowances - business travel

An employer may reimburse its employees for local travel or transportation expenses while away from home through a mileage allowance. The amount of the allowance up to the federal business standard mileage rate is deemed substantiated, so long as the employee substantiates the time, place, and business purpose of the travel. For 2016, the business standard mileage rate is $.54 (54 cents) per mile.

Under the principle of double-entry bookkeeping, what can a credit to an account signify?

An increase in a liability account

When in the payroll process should the payroll records be checked for accuracy?

At every process.

If an employee is receiving pension or annuity payments and does not submit a Form W-4P, how must the payer withhold?

As if the employee is Married, Claiming 3 withholding allowances.

Basic Accounting Guideline

Assets and expense increase are debits, while liabilities increase is a credit.

What is the balance sheet equation?

Assets- Liabilities + Owner's Equity

Time Spent at Meetings and Training Sessions (Worktime)

Attendance at lectures, meetings, seminars, and training sessions is worktime unless all the following conditions are met: 1) The meetings, lecture, etc., is held outside of the employee's regular working hours. 2) Attendance is voluntary (not a condition of employment). 3) The meeting, lecture, etc., is not directly related to the employee's job; and 4) the employee does not perform any productive work for the employer while attending.

Which participants in the direct deposit process distributes EFT payments to the receiving financial institutions?

Automated Clearing House (ACH)

Tax Treatments of Insurance Benefits Excludable from Income

Benefits received by an employee under an accident or health insurance plan that directly or indirectly reimburses the employee medical expenses incurred by the employee and his or her spouse, dependents, and children who have not reached age 27 at the end of the taxable year are also not included in the employee's income.

What two ways may payroll expenses be recorded?

By function or type of pay.

Exempted Employees (White Collar Exemption)

CAPES: Computer professional employee (salary level $455 per week or $27.63/hour), Administrative (salary level $455/week), Professional (salary level $455/week), Executive (salary level $455/week) and Salesperson (salary level - no requirement to qualify as exempt).

Example - Sick Pay Under a Separate Plan

CPP Study Group Handouts w/ Answers Page 78 Example: Mike was injured in a non-job-related accident on March 2, 2015 and was out of work until January 1, 2016. Mike received payments of $3,000 per month while out of work from his employer's insurance company. During the 3 policy years before 2015, Mike's employer contributed $30,000 in net premiums to insure its employees, while the employees paid $10,000 in after-tax dollars. The amount of Mike's monthly sick pay that is included in income is: Taxable sick pay = $3,000 x [$30,000 ÷ ($30,000 + $10,000)] Taxable sick pay = $3,000 x ($30,000 ÷ $40,000) Taxable sick pay = $3,000 x .75 Taxable sick pay = $2,250 Remember: Where the employee paid the premium with pre-tax dollars, the amount is fully taxable.

How Cafeteria Plans Are Funded

Cafeteria plans and other flexible benefit plans are generally funded by either or both of the following: Flex dollars or flex credits - each employee is provided with a certain amount of flex dollars or credits which they can use to buy selections from the plan menu or elect to receive them in cash Salary reduction - employees use part of their own salary to purchase their benefit selections through pre-tax or after-tax deductions

What needs to be done when a workweek is changed?

Calculate the overlapping days for both the old week and new week - use higher. 1) add the overlapping days to the old workweek. 2) calculate the overtime hours and pay due for the old and new workweeks on this basis. 3) add the overlapping days to the new workweek. 4) Calculate the overtime hours and pay due for the old and new workweeks on this basis. 5) Pay the employee the greater amount from step 2 or step 4.

A company willfully failed to withhold social security and Medicare taxes from the salaries of five employees. What may occur?

Certain officers of the corporation can be held personally responsible for the payment of taxes.

Club Memberships

Club dues may qualify as a working condition fringe benefit and would not be taxable if the following apply: The employer does not treat them as wages The expenses would be deductible by the employee and The employee substantiates the expenses

Commissions

Commissions on sales of goods or insurance premiums are subject to federal income tax withholding and social security, Medicare, and FUTA taxes when paid to an employee.

Types of Workers

Common Law Employee, Independent Contractor, Statutory Employee, Statutory Nonemployee, Temporary Help Agency Employee & Leased Employee

What determines whether a paycheck must be voided?

Company Procedures

HSA Contributions

Contributions up to maximum not included in income Contributions to an HSA made by or on behalf of an eligible individual up to the maximum annual contribution limit are deductible by the individual. In addition, employer contributions (including salary reduction and contributions made through a cafeteria plan) are excludable from gross income and wages for income tax withholding and social security, Medicare, and FUTA tax purposes if the employer reasonably believes at the time the contribution is made that it will be excludable from the employee's income. Maximum annual contribution The maximum annual contribution that can be made to an HSA in year 2016 is $3,350 in the case of self-only coverage and $6,750 in the case of family coverage. Individuals age 55 and older can make additional "catch-up" contributions to an HSA until they are enrolled in Medicare. The additional allowable contribution for year 2016 is $1,000.

Statutory Employees

DISH - Driver, Insurance Salesperson, Salesperson & Homeworker. These workers are not employee under the common law, but are treated as employees for certain employment tax purposes.

A former employee is applying for a new job with another company. The new company contacts the payroll department with a request for information. What type of information can the payroll department release without breaching confidentiality?

Dates of employment if authorized in writting by the employee.

Death Benefits

Death benefits paid upon an employee's death to his or her estate or beneficiaries must be reported on Form 1099-MISC when they are paid under a qualified or nonqualified deferred compensation plan, and on Form 1099-R when they are paid under such a plan or not. The benefits are not subject to social security or Medicare taxes.

What journal entries are required to record $250,000.00 in salaries earned during the last week of July but paid in August?

Debit salary expense; credit salary payable

How does direct deposit work?

Direct deposit of payroll is the automatic deposit of an employee's pay into the employee's checking and/or savings account at a financial institution. For those employees being paid through direct deposit, here is the process: 1. The employer prepares an automated file of direct deposit records indicating where the employees' pay is to go. This file is then sent to a financial institution with the ability to process the file, known as the Originating Depository Financial Institution (ODFI). 2. The ODFI makes sure the file has been prepared correctly, checks for any exceptions and entries for employees' accounts maintained by the ODFI and processes the file through the Automated Clearing House (ACH) network. 3. The ACH operators deliver files to the Receiving Depository Financial Institution (RDFI). Here are more details on the roles of each of these institutions: ODFI - delivers the file to the ACH Operator ACH - operates under the rules developed by NACHA, the Electronic Payments Association, and processes electronic payments between the ODFI and the financial institutions designated by the employees to receive their payments and coordinates the financial settlement between the participating financial institutions RDFI - designated by the employees and accepts the electronic payments, posts them according to ACH rules, and settles with the ACH Operator for their value.

Which W-2 Box 12 code is used for a 403(b) plan?

E (E for Education)

Per diem allowances - business travel

Employers may provide reimbursement in the form of a per diem allowance for each day of travel. The amount of the per diem is deemed substantiated as long as it does not exceed the IRS-established federal per diem rates and the employee substantiates the time, place, and business purpose of the expenses.

What are salaried nonexempt employees?

Employees whose salaries do NOT exceed a certain level and who do NOT meet the duties and responsibilities tests for exemption are classified as exempted. These employees must be paid overtime. The regular rate of pay for such employees is determined by dividing he employee's salary by the number of hours the salary in intended to compensate. The easiest way to calculate this is to take the employee's annual salary and divide it by the number of hours to be compensated in a year.

Election and notice provisions - health insurance

Employee and other qualified beneficiaries who wish to take advantage of continued group health plan coverage must make an election of such coverage. The election period must last for at least 60 days and can begin no earlier than the date on which coverage was terminated because of the qualifying event.

Employee Authorization - Direct Deposit

Employee authorization for direct deposit Before an employer can begin direct deposit for an employee, the employee must agree to allow the electronic transfer of funds from the employer to the employee with a direct deposit authorization. Under the NACHA rules, authorizations to make credit entries to employees' accounts do not have to be in writing. Authorizations of debit entries must be in writing and signed or similarly authenticated by the employee.

Retail and Service Industry Exemption (FLSA)

Employees in retail or service industries are exempt from the overtime pay requirements of the FLSA if: 1) their regular rate of pay on a weekly basis (hourly rate plus commissions) is at least 1 1/2 times the federal minimum wage in effect; and, 2) more than half of their pay for a representative period (at lease one month) comes from commissions.

Medical Savings Accounts (Archer MSAs)

Employees of small employers who are covered by an employer-sponsored high deductible health insurance plan can make tax deductible contributions to a Medical Savings Accounts or to have the employer make contributions on the employee's behalf that are not included in the employee's income. These are referred to Archer MSAs.

Tax Treatment of Cafeteria Plans

Employer contributions These are excluded from the employee's income and are not subject to federal income tax withholding or employment taxes to the extent the contributions relate to nontaxable benefits selected by the employee. Pre-tax contributions Pre-tax contributions made by an employee to a qualified cafeteria plan are excluded from the employee's income and are not subject to federal income tax withholding or social security, Medicare, and FUTA taxes. Group-term life insurance In addition to offering up to $50,000 of nontaxable group-term life insurance on the life of an employee, a cafeteria plan may offer coverage above $50,000 as a qualified benefit. After-tax contributions Contributions toward benefits that are made with after-tax dollars are included in the employee's income and are subject to federal income tax withholding and social security, Medicare, and FUTA taxes. The benefits purchased, however, are excluded from the employee's income. Cash If employees choose to take cash instead of purchasing benefits with their flex dollars, the payments are wages and are subject to federal income tax withholding and social security, Medicate, and FUTA taxes. Discriminatory Plans Cafeteria plans that discriminate in favor highly compensated individuals, employees, or participants, or key employees are not disqualified and do not have negative tax consequences for other participants. Taxation of qualified HSA distributions A qualified HSA distribution from the health FSA covering the participant to his or her HSA is a rollover to the HSA and thus is generally not includible in gross income.

HSA Reporting Requirements

Employer contributions, including salary reduction contributions through a cafeteria plan, are required to be reported on the employee's Form W-2 in Box 12 with Code W. Employer contributions that are not excludable from income also must be reported in Boxes 1, 3 and 5, with the taxes withheld reported in Boxes 2, 4, and 6.

Adoption Assistance - Withholding and Reporting Obligations

Employer provided adoption assistance that meets the IRS requirements is not subject federal income tax withholding, even if assistance exceeds the maximum dollar limitation. However, these amounts are subject to social security, Medicare, and FUTA taxes. It must be reported in boxes 3 and 5 of the W-2 and the amounts withheld for social security and Medicare taxes reported in boxes 4 and 6. the assistance must also be reported in box 12, with code "T".

Group Legal Services

Employer-paid group legal services payments are included in the employee's income and are subject to federal income tax withholding and social security, Medicare, and FUTA taxes.

Tax Treatment of Employer-Paid Premiums

Employer-paid premiums excludable from income Generally, contributions made by an employer to an accident or health insurance plan providing insurance for its employees and their spouses and dependents are not wages and are not subject to federal income tax withholding or social security, Medicare, and federal unemployment (FUTA) taxes. For employee contributions, unless they are made through a valid salary reduction plan under IRC §125, they would be included in the employees' income for income tax withholding and employment tax purposes.

Employer-Provided Meals and Lodging - business travel

Employer-provided meals The value of meals furnished by an employer is excluded from the employee's income and is not subject to federal income tax withholding or social security, Medicare, or FUTA tax if: The meals are furnished on the employer's business premises; and They are furnished for the convenience of the employer Employer-provided lodging The value of employer-provided lodging is excluded from the employee's income if: The lodging is furnished on the employer's business premises The lodging is furnished for the employer's convenience; and The employee is required to accept the lodging as a condition of employment

Medical Savings Accounts (Archer MSAs) Requirements

Employers are eligible to provide MSAs for their employees if they employed no more than 50 employees during either of the two preceding calendar years. In order to be eligible to make contributions to an MSA, or to have the employer make contributions on their behalf, the employee must be covered only by a high deductible health insurance plan, with certain limited exceptions. For year 2016, a high deductible health plan is a plan with an annual deductible of $2,250 - $3,350 for individual coverage and $4,450 - $6,700 for family coverage. Contributions to an MSA can be made either by the employee or the employer but not both. Employee contributions to an MSA are deductible from income and employer contributions are excludable from income and not subject to federal income tax withholding or social security, Medicare or FUTA tax, with certain limitations. Employer contributions to an employee's MSA must be reported in Box 12 of the employee's Form W-2, preceded by Code R (aRcher). Employee contributions to a medical savings account are subject to federal income tax withholding and social security and Medicare taxes, and must be reported as such in Boxes 1, 3, and 5 of Form W-2. The employee can take a deduction for the contributions on his or her personal income tax return.

Qualified Retirement Planning Services

Employers can provide retirement planning services to their employees and the employees' spouses without their value of the services being included in the employees' Income or subject to social security, Medicare, or FUTA tax.

Stocks and Stock Options

Employers often compensate employees or provide incentives in the form of company stock or an option to buy company stock at a fixed price. The tax consequences of such compensation depend on several variables, such as the form of the compensation and the conditions attached to receiving it. Employer stock as compensation If an employer pays employees with company stock instead of cash as compensation for services rendered, the fair market value of the stock when transferred to the employee without restrictions is wages subject to federal income tax withholding and social security, Medicare, and FUTA taxes. Stock Options Options to buy company stock can take several forms Incentive stock options - gives an employee the opportunity to buy the employer corporation's stock at a fixed price for a certain period of time. To qualify for favorable tax treatment, several conditions must be met. Employee stock purchase plans - employees are given the opportunity to buy the employer corporation's stock at a discount. When the stock is sold, the employer has ordinary income equal to the lesser of: (1) the difference between the option price and the fair market value of the stock on the day the option was granted; or (2) the difference between the option price and the fair market value of the stock on the day of the sale. Nonqualified stock options A nonqualified stock option gives an employee the opportunity to buy the employer corporation's stock at a fixed price for a certain period of time, without the conditions placed on incentive stock options. When the option is exercised, the employee receives income equal to the excess of the value of the stock when the option is exercised over the price paid by the employee. This income is subject to federal income tax withholding and social security, Medicare, and FUTA taxes.

Child labor restrictions for minors under age 14.

Employment is generally prohibited, unless the minor is working for a parent, and even those jobs cannot be hazardous or in mining or manufacturing.

What is NOT a staffing concern?

Evaluating next year's staff budget

Reasonable Basis Test

Even though a worker mets the definition of an employee under the common law test, an employer may treat a worker as an independent contractor exempt from federal payroll tax laws if it has a "reasonable basis" for doing so, as determined by section 530 of the Revenue Act of 1978. The reasonable basis may consist of one more of the following, as well as any other reasonable basis: Court decisions, published IRS rulings, IRS technical advice; a past IRS audit of the ER that didn't result in finding of taxes owed; a longstanding, recognized industry practice of treating workers in similar situations as independent contractors.

Withholding and Reporting on Noncash Fringe Benefits

Fringe benefits provided in a form other than cash are known as noncash fringe benefits and get special treatment by the IRS. The employer may treat the benefit as being paid on a pay period, quarterly, semiannual, annual or other basis, but no less frequently than annually. An employer may also treat the value of a single fringe benefit as being paid on several dates during the calendar year. The employees do not have to be told of the employer's election, and neither does the IRS. Special accounting rule Employers have another option for reporting noncash fringe benefits. They may treat fringe benefits provided during November and December of one year as being paid during the next year. This gives employers additional time to value noncash fringe benefits. There are some restrictions that apply. Example Tim's employer calculates the fair market value for Tim's personal use of a company-owned vehicle on a monthly basis. For this year, the fair market value for his personal use of the car for November was $250 and for December it was $300. Tim's employer uses the special accounting rule and therefore $550 will be reported in the following year, while the value for January through October will be reported in the current year.

Benefit Elections - Cafeteria Plan

Generally, employees must make irrevocable benefit elections under a cafeteria plan before the benefit becomes available or the plan year begins, whichever comes first. The changes in status that allow a cafeteria plan to permit an employee to revoke or change a benefit election during a plan year include: Marital status changes - marriage, divorce, death of spouse, legal separation, or annulment Changes in the number of dependents or adult children before the year they reach age 27 - birth, adoption, placement for adoption, or death of a dependent or eligible adult child Employment status changes - termination or commencement of employment, strike or lockout, starting or ending an unpaid leave of absence, change in worksite, change from full-time to part-time, exempt to nonexempt, or salaried to hourly status Residence change - a change in the place of residence of the employee, spouse, or dependent Adoptions - the commencement or termination of an adoption proceeding Rules for cost-driven changes Election changes also may be made to reflect significant cost or coverage changes for all types of qualified benefits provided under a cafeteria plan during the plan year.

Reporting Requirements - Cafeteria Plan

Generally, pre-tax contributions to a cafeteria plan need not be reported by an employer in its quarterly Form 941 or an employee's Form W-2 as taxable wages.

Tips

Generally, tips or gratuities provided voluntarily by customers are taxable wages to the employee receiving them. There are special rules that apply. Service charges are not tips Employees must report tip income to employers on Form 4070 The IRS allows employers to establish electronic systems for their tipped employees to use in reporting their tips Tip income is subject to federal income tax withholding and social security, Medicare, and FUTA taxes if the employee reports more than $20 in tips for the month. Tips are deemed to be paid when the employee furnishes the required report to the employer If an employee fails to report or underreports the amount of tips received, the employer is liable only for the employer share of social security and Medicare taxes and the employee is liable for the employee share.

Gifts

Gifts provided to employee must be included in the employees' income and are subject to federal income tax withholding and social security, Medicare, and FUTA taxes unless they can be excluded as a de minimis fringe benefit or as a gift between relatives that is not based on the employer-employee relationship.

What payments are not included in the regular rate of pay for overtime purposes?

Gifts, paid time off and reimbursed expenses, discretionary bonuses, volunteer work counted toward group's bonus, benefit plan contributions, stock options, overtime compensation, premium pay for extra days worked, premium pay under a union contract for extra hours.

Conventions

If an employee's attendance at a convention, conference, or seminar is related to the employee's job and the employee accounts for his or her expenses in attending, any reimbursement by the employer up to the full amount of the expenses is excluded from the employee's income as a working condition fringe benefit.

Dependent group-term life insurance

Group-term life insurance coverage may be provided to an employee's dependents (spouse and/or children) as well as the employee. If so, the value of up to $2,000 of coverage is not included in the employee's income because it is a de minimis fringe benefit. If the coverage exceeds $2,000, its entire value must be included in the employee's income after being calculated using the IRS Table and the age of each covered dependent. If the dependent's age is not known, the employee's age is used in the calculation.

Highly Compensated Employees - Internal Revenue Code (IRC)

Highly compensated includes any employee who: was a 5 % owner of the employer's stock or capital at any time during the current or previous year; or. received more than $120,000 in compensation from the employer during the preceding year.

Withholding on Cash Fringe Benefits

If a fringe benefit that must be included in an employee's income is provided by the employer in cash, the employer must withhold any federal income, social security, or Medicare tax due when the benefit is paid.

Reporting Requirements - Dependent care assistance

If an employee contributes to a dependent care assistance FSA through either pre-tax contributions or flex credits, the employer must report the amounts on the employee's Form W-2 in Box 10, with the excess over $5,000 reported as well in Boxes 1,3, and 5.

Accounting for vehicle use

If an employee uses a company vehicle for both business and personal travel, they must substantiate their usage by accounting for the mileage, the time and place of the travel, and the business purpose of the travel. Valuation Methods Employers can determine the fair market value of taxable personal use of a company-provided vehicle by using either a general valuation method or one of three special valuation methods. General Valuation Method Under this method, the fair market value of a company-provided vehicle is the price an individual would pay to lease the same or a comparable vehicle in an arm's length transaction in the same geographic area for the same length of time. Special Valuation Methods There are three special valuation methods for determining the fair market value of the personal use of a company-provided vehicle: Commuting Valuation Cents-per-mile Valuation Annual Lease Valuation

Affordable Coverage (ACA)

If an employee's share of the premium for employer-provided coverage would cost the employee more than 9.66% of that employee's annual household income, the coverage is not considered affordable for that employee. Because employers generally will not know their employees' household incomes, employers can take advantage of one or more of the three affordability safe harbors set forth in the regulations that are based on information the employer will have available, such as the employee's Forms W-2 wages or the employee's rate of pay. The three affordability safe harbors are as follows: 1. The Form W-2 wages safe harbor - which generally is based on the amount of wages paid to the employee that are reported in Box 1 of that employee's Form W-2. 2. The rate of pay safe harbor - which generally is based on the employee's rate of pay or salary at the beginning of the coverage period, with adjustments permitted, for an hourly employee, if the rate of pay is decreased (but not if the rate of pay is increased). 3. The federal poverty line safe harbor - which generally treats coverage as affordable if the employee contribution for the year does not exceed 9.5% of the federal poverty line for a single individual for the applicable calendar year.

Equipment Allowance

If an employer pays an allowance to employees who use their own tools or heavy equipment on the job, the allowance is not included in income and is not subject to federal income tax withholding or social security, Medicare, or FUTA taxes.

Dependent Care Assistance Programs

If an employer provides some type of dependent care assistance program for their employees, whether it is an on-site or off-site day care facility or reimbursement for the employees' expenses in obtaining their own dependent care, the amount spent is excluded from an employee's income and is not subject to federal income tax withholding or social security, Medicare, or FUTA taxes. The excluded amount of dependent care assistance cannot exceed $5,000 per year. Payments above that limit are subject to federal income tax withholding and social security, Medicare, and FUTA taxes. Other requirements for Dependent Care Assistance: Dependent care must be necessary Expenses are treated as incurred when the care is provided, and not when payments are made to the employee or a third party There must be a separate written plan The program must not discriminate in favor of highly compensated employees Employer must provide a statement each year by January 31 showing the dependent care expenses incurred The value of the benefit is the amount reimbursed during the year and any amount reimbursed after the year for assistance provided during the previous year The value of the benefit must be included on the employee's Form W-2 in Box 10, with the taxable amounts in Boxes 1, 3, and 5 as necessary

Payments under a nonaccountable plan - business travel

If an employer's reimbursement plan fails to meet any single requirement just mentioned, it is a nonaccountable plan and payments made under the plan are subject to federal income tax withholding and social security, Medicare, and FUTA taxes. However, if one employee substantiates their expenses and another does not, the plan does not become nonaccountable for all other employees.

Tax Reporting Responsibilities - Sick Pay

If the employer makes the payments: they must report all taxable amounts on their quarterly Form 941 the taxable amounts must be also be reported to the employee on Form W-2 in Boxes 1, 3 and 5 with nontaxable amounts attributable to employee contributions in Box 12, preceded by Code J all payments must be reported on their Form 940. If the employer's agent makes the payments the employer retains reporting responsibility the employer's name and EIN are used on all forms If the agency agreement shifts the responsibility from the employer to the agent, the agent should use their own name and EIN If the third-party insurer makes the payments The third party must report the taxable amount of sick pay on their quarterly Form 941 The taxable amounts must be reported to the employee on Form W-2 (same requirements as those for the employer above) The checkbox "third-party sick pay" must be checked on Box 13 of Form W-2 All payments must be reported on Form 940

Employee Business Travel Expense Reimbursements

In general, if reimbursement for business travel is made under an "accountable plan," the amount is excluded from income and is not subject to federal income tax withholding or social security, Medicare, or FUTA taxes. Travel must be "away from home" and "temporary" To qualify, the employee must be away from his or her regular or principal place of business and must be away from home for no more than one year.

Form W-4P

In most instances, federal income tax must be withheld from pension and annuity payments made to retired employees. Unless directed otherwise, payers and plan administrators must withhold certain amounts, depending on whether the payments are periodic, nonperiodic, or eligible rollover distributions. By completing a Form W-4P, Withholding Certificate for Pension or Annuity Payments, retirees, can: Elect not to have any income tax withheld Designate a certain number of withholding allowances to be used in calculating the amount withheld; or Indicate an additional dollar amount to be withheld

Civic or charitable awards

Is this included in income? No General requirements Recipient cannot actively seek the award Award is not conditioned on performing future services Recipient must turn the award over to a governmental or charitable organization

Prizes for retail salespeople

Is this included in income? Yes These are noncash prizes awarded to retail salespeople paid solely on a commission basis for exceeding quotas or selling the most goods. Employers do not have to withhold federal income tax from such prizes, but they must be reported as income and are subject to social security, Medicare, and FUTA taxes.

Salaried nonexempt employees workweeks of less than 40 hours.

It is not a violation of the FLSA's minimum wage or overtime provisions if the employee is not paid for gap time, as long as they are receiving at least minimum wage for the total number of hours worked. But if that employee works more than 40 hours in a workweek, they must be paid their regular rate of pay for all hours worked, plus the premium pay (1/2 the regular rate) for any hours over 40.

Premium Only Plans (POP)

Known as POP or premium conversion plans, are used by employers who require their employees to contribute toward benefits, usually health insurance. This type of plan generally does not offer a menu of benefits to choose from, but allows employees to pay for their share of the benefit costs on a pre-tax basis through a salary reduction in the amount of the required contribution. They are permissible under §125.

Which management theory reviews the differences between managers and leaders?

Kotter

Awards and Prizes

Length of service or safety achievement awards Is this included in income? No General requirements Must be an award of tangible personal property, which does not include cash or cash equivalents Must not be presented for less than five years on the job and must not have been awarded to the same employee within the last four years. Safety awards cannot be presented to more than 10% of eligible employees during a taxable year and cannot be presented to managers, administrators, professional employees, or clerical employees. In order for awards to be part of a qualified plan, there must be a written plan that does not discriminate in favor of highly compensated employees.

Behavioral Control

Level of instructions the business gives the worker; &, level of training provided to the worker

What kind of account is accrued salaries payable?

Liability

What is the most important communication skill?

Listening

Loans to Employees

Loans made to employees by their employer at interest rates below the applicable federal interest rate are below-market, compensation-related loans. 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.

Long-Term Care Insurance

Long-term care insurance contracts are generally treated as accident and health insurance contracts and amounts received under such contracts are excluded from income as amounts received for personal injuries and sickness and reimbursements for medical expenses. If the contract makes per diem payments, the excludable amount will be capped at $340 per day for year 2016.

A payroll system should ensure?

Maintenance, storage and retrieval of records.

What is a key advantage of processing payroll with a service provider compared to an in-house payroll system?

No initial investment, no maintenance

Child Labor Restrictions for minors under age 18.

No minor under age 18 can work in a job that has been declared hazardous by the Wage and Hour Division.

Once an employee has given authorization for EFT and the employer creates electronic pay transactions for deposit, where does the employer send them?

Originating Depository Financial Institution (ODFI)

Non-Taxable Fringe Benefits

Once certain conditions are met, the Internal Revenue code exempts certain fringe benefits from being included as income. This means they are NOT subject to federal income tax withholding, or social security, Medicare or FUTA taxes. they include: no additional cost services; qualified employee discounts; working condition fringes; de minimis fringes; qualified transportation benefits; on-premises athletic facilities; qualified retirement planning services; and, qualified moving expense reimbursement.

Affordable Care Act Health Insurance Requirements

One of the major requirements of this legislation is that "applicable large employers" (ALEs) provide "affordable" health insurance to their full-time employees that provides "minimum essential coverage." This is the Employer Shared Responsibility (ESR) requirement. For 2015 and after, employers employing at least 50 full-time employees (including fulltime equivalent employees) are subject to the ESR provisions under IRC §4980H. A fulltime employee is an individual employed on average at least 30 hours per week. An employer that meets these thresholds is referred to as an "applicable large employer (ALE). The employer may be subject to an ESR payment if at least one of its full-time employees receives a premium tax credit for purchasing individual coverage on one of the Affordable Insurance Exchanges, also called a Health Insurance Marketplace. For purposes of determining whether an employer is an ALE, all employees are counted, regardless of whether the employees are eligible for health coverage from another source, such as Medicare, Medicaid, or a spouse's employer. But, employees who are eligible for Medicare or Medicaid are not eligible for a premium tax credit. New employers The status of new employers is determined based on the average number of employees the employer is expected to have in the current year.

Life Insurance

One of the more popular benefits offered employees is employer-provided life insurance. The most common type of insurance is group-term life insurance, which most often provides a death benefit payable in a lump sum to the employees designated beneficiary. Other types of insurance such as whole life or split-dollar life insurance will also be reviewed, but not in as much detail as group-term life.

Personal Use of Employer-Provided Vehicles

One of the most common fringe benefits provided to employees is use of a company-owned or company-leased vehicle. When the vehicle is used for business-related purposes, the value of the use is excluded from income as a working condition fringe benefit. All other use of the vehicle is generally considered taxable income to the employee, unless an exception applies. Those exceptions are: De minimis fringe benefit - car is used mainly for the employer's business, with infrequent and brief side trips for personal reasons Qualified nonpersonal use vehicle - the car is unlikely to be used for personal travel because of its special design Automobile salespeople - use of a demonstration vehicle by a full-time automobile salesperson or sales manager within the sales area of the dealership

Qualifying Events and Periods of Coverage

Page 75 - A qualifying event is any of the following that would result in the loss of group health insurance coverage for a qualified beneficiary: Qualifying Event/Period of Coverage Employee's termination (for reasons other than gross misconduct) or reduction in hours worked/ 18 months (24 months if the reason for absence from employment is the employee's military service); Extended to 36 months if another qualifying event occurs during this period. Employer's Bankruptcy/ The life of the retiree or the retiree's spouse; Once the retiree dies, the period of continuation for the retiree's spouse and children is 36 months from the retiree's death. Employee's termination or reduction in work hours and a qualified beneficiary is disabled at any time during the first 60 days of continued coverage/ 29 months Extended to 36months if another qualifying event, (other than bankruptcy) occurs during that period. Employee's death, divorce, separation, or entitlement to Medicare, or a covered child's loss of covered child status/ 36 months.

Who Can Participate in the Plan - Cafeteria Plan

Participation must be restricted to employees (including former employees but not self-employed individuals), and the plan must be maintained for their benefit. It may not be maintained solely for the benefit of former employees.

Combat zone pay

Pay received by U.S. military personnel while serving in a combat zone or while hospitalized as a result of such service is excluded from income with certain limitations.

What information is interfaced between the payroll system and the bank reconciliation system?

Paycheck amount.

Statutory Employees Taxation

Payments made by an employer to statutory employees are NOT subject federal income tax withholding, but are subject to withholding for social security and Medicare taxes. Also, the employer must pay the employer's share of FICA and, in some instances, federal unemployment tax (FUTA).

Permanent Disability Benefits

Payments to total and permanently disabled employees are income to the employees and are subject to federal income tax withholding by the party making the payments to the extent the employer paid the premiums or the employee paid the premiums with pre-tax dollars. Amounts paid on or after the employment relationship has been terminated because of death or disability retirement are not subject to social security, Medicare, or FUTA tax. However, such amounts are subject to employment taxes if they would have been paid even if the employment relationship would not have been terminated for such a reason. For example, payment for unused vacation time that would have been made regardless of the reason for termination would be subject to social security, Medicare, and FUTA taxes.

The main responsibility for determining the success of the payroll department belongs to the?

Payroll Manager

Discounts on Property or Services

Qualified employee discounts qualify as nontaxable fringe benefits. But employee discounts on good or services normally sold to customers that do not qualify for the exclusion must be included in the employee's income.

Receiving Depository Financial Institution (RDFI)

RDFI - designated by the employees and accepts the electronic payments, posts them according to ACH rules, and settles with the ACH Operator for their value. The ACH operators deliver files to the Receiving Depository Financial Institution (RDFI).

Statutory Nonemployees

REDS - Real Estate agents and Direct Sellers, plus companion sitters. Employers do not withhold FIT, Social Security, Mdicare and FUTA taxes.

Reimbursements for daily transportation expenses - business travel

Reimbursements for an employee's daily transportation expenses are not included in the employee's income if: The expenses are incurred in going between the employee's residence and a temporary work location outside the metropolitan area where the employee lives and normally works. Example: John lives in Parsippany and works at his company's location in Roseland. John is asked by his manager to spend a week at their office in New York City to train some new employees at that location. His employer reimburses him for the commute to New York City and it is not taxable. The employee has one or more regular work locations away from the employee's residence and the expenses are incurred in going between the employee's residence and a temporary work location in the same trade or business, regardless of the distance. Example: Jennifer is an inspector for her company and is asked to inspect three different job sites over the next three months. Jennifer drives to these sites, performs the inspections and is reimbursed for her travel. These expenses are not taxable. The employee's residence is his or her principal place of business and the expenses are incurred in going between the employee's residence and another work location in the same trade or business, regardless of whether the other work location is regular or temporary and regardless of the distance. Example: Jack works from home. Occasionally, it is necessary for Jack to drive into the company's office for meetings. His employer reimburses him for this commute and it is not taxable.

The ability of a payroll department to provide accurate paychecks on a timely basis is an example of the customer service principle of?

Reliability

Examples of Supplemental Wages

Reported tips Overtime pay Bonuses Back pay Commissions Reimbursements under a nonaccountable plan Nonqualified deferred compensation payment included in wages Noncash fringe benefits Sick pay by a third party as an agent of the employer Amounts includible in gross income under IRC §409A Income recognized on the exercise of a nonstatutory stock option Wages imputed for health coverage of a non-dependent of an employee Wage recognized on the lapse of restrictions on restricted property transferred from an employer to an employee

If an employee believes that an error has been made in his paycheck, a payroll professional should?

Research and document the employee's pay to determine if an error was made and review the results with the employee.

The customer service principle of being responsive means that a payroll technician will?

Respond to customers promptly.

Retroactive Wage Payments

Retroactive wage payments are treated as wages when they are made and are subject at that time to federal income tax withholding and social security, Medicare, and FUTA taxes.

What i s the first step in setting up an employee's direct deposit?

Secure the employee's authorization.

Security Provided to Employees

Security provided to employees who carry large sums of money or jewelry, have access to confidential information, or have jobs involving matters of national security may be excluded from income as a working condition fringe benefit. To qualify, the employer must have a "bona fide business-oriented security concern".

When implementing internal controls in the payroll department, the payroll manager:

Segregates job duties.

What are employment taxes?

Social security, medicare and unemployment taxes.

When using vendor-supplied software to process payroll, what is considered a disadvantage?

Specific needs may not be met

Companion Sitters

Statutory Nonemployee; are individuals who furnish personal attendance, companionship or household care services to children or to individuals who are elderly or disabled.

Strike Benefits

Strike and lockout benefits paid by a union to its members to provide them with money to pay bills during the strike generally are not wages and are not subject to federal income tax withholding or social security, Medicare, or FUTA taxes. However, if the union pays members an hourly wage for picketing activity, the payments are wages.

System generated audit trails may be limited to?

System resources

Family and Medical Leave Act (FMLA)

The Family and Medical Leave Act (FMLA) allows employees to take up to 12 workweeks of unpaid leave in a 12 month period to be with a newborn or newly adopted child, to take care of a seriously ill child, spouse, or parent, to care for themselves if they are seriously ill, or because of any qualifying exigency arising out of the fact that the employee's spouse, son, daughter, or parent is a covered military member on active duty or has been notified of an impending call to active duty in support of a contingency operation. The law also guarantees continuation of employees' health benefits while on leave.

Adoption Assistance

The IRS allows employer-provided adoption assistance to be excluded from an employee's income. Dollar limitation The maximum exclusion for qualified adoption expenses in 2017 is $13,460 per eligible child. Adoption of an eligible child An eligible child is an individual who is under age 18 or is physically or mentally incapable of caring for himself or herself when the adoption assistance is provided.

COBRA Health Insurance Continuation

The Consolidated Omnibus Budget Reconciliation Act of 1985 requires health plan sponsors to provide employees and their beneficiaries with the opportunity to elect continued group health coverage for a given time period should their coverage be lost due to certain "qualifying events." The requirements apply to employers with 20 or more employees on a typical business day.

What federal agency enforces equal pay provisions?

The Equal Employment Opportunity Commission (EEOC).

Overtime for Hospitals and Nursing Homes

The FLSA contains an exemption to the workweek standard for hospitals and nursing homes that is designed to give them more flexibility in scheduling. The law allows such employes to use a 14-day period rather than the workweek for determining overtime compensation. All of the following conditions must be met:

FMLA Employer and Employee Coverage

The FMLA applies to private sector employers with 50 or more employees. An employee at a facility with less than 50 employees may still be eligible for the leave benefits if the employer has at least 50 employees working within a 75-mile radius of the facility.

Pay Frequency

The Fair Labor Standards Act does not regulate how often employees must be paid by their employer how soon they must be paid after performing services. These matters are left up to the individual states.

Payment Methods

The Fair Labor Standards Act does not regulate the actual methods or media used by employers to pay their employees. Individual states have assumed the task of making sure employees actually receive cash or its equivalent when they are paid for services performed.

What federal agency administers the federal wage-hour law?

The US Department of Labor (DOL, Wage and Hour Division.

Fair Market Value - Fringe Benefits

The amount of the benefit the employer must include as income to the employee is the amount by which the fair market value exceeds the amount paid for the benefit after taxes plus any amount the law specifically excludes: Includable fringe benefit amount (IFBA) = Fair Market Value (FMV) - (Employee Paid Amount (with after-tax dollars) (EPA) + Amount excluded by law (AEL). Or IFBA=FMV-(EPA+AEL)

Uniform Allowances

The amount paid by an employer for the cost of purchasing and maintaining an employee's uniform is not wages if the uniform is required as a condition of employment and cannot be worn as street clothes.

IRS Penalties - intentional misclassification of an employee

The employer is liable for the full amount of FIT that should've been withheld and 100% of the employee's and employer's share of social security and Medicare taxes.

Fair Labor Standards Act (FLSA)

The federal Fair Labor Standards Act, also known as the federal wage-hour law, regulates the following: minimum wage, overtime pay, child labor and equal pay for equal work.

Health Care Costs Not Included in the aggregate reportable cose

The following amounts are not included in the aggregate reportable cost, but they may be reportable elsewhere on Form W-2. Archer Medical Savings Account (Archer MSA) Health Savings Account (HSA) Multiemployer Plan Health Reimbursement Arrangement (HRA) Health Flexible Spending Arrangement (FSA)

Lower Opportunity Wage for Teenagers

The minimum wage for newly hired employees under the age of 20 is $4.25 per hour for the first 90 consecutive calendar days after they ar employed, unless the employee is covered by a state law requiring a higher minimum wage. If the employee reaches age 20 during the 90-day period, the EE must be paid at least the federal minimum wage in effect as of the EE's bday on or after their 20th bday.

Direct Deposit

The most popular method of paying employees is direct deposit, a type of electronic funds transfer (EFT) allowing employers to deposit employees' pay directly into their designated bank accounts without having to handle a paycheck. It helps eliminates many of the problems associates with employee paychecks, including: Lost or stolen checks; Unclaimed or uncashed checks; Employee time off to cash checks; Storage of cashed checks and related documents; and Early preparation of vacation checks

Methods of Withholding Federal Income Tax

The most popular methods are the wage-bracket method and the percentage method. Employers with automated payroll systems or that use a service provider to process their payroll generally use the percentage method of withholding. For these two methods, four pieces of information are necessary in order to calculate an employee's federal income tax withholding. They are: Payroll period (also known as the pay frequency) Taxable Wages Marital Status (from the employee's Form W-4) Number of Withholding Allowances (from the employee's Form W-4)

Percentage Method - Tax Withholding

The percentage method of withholding is somewhat more flexible than the wage-bracket method and can be used for more different payroll periods. However, when calculating tax withholding manually, it's a bit more complex. Here are the steps to use the percentage method: 1. Find the number of withholding allowances claimed by the employee 2. Locate the amount to subtract based on their pay frequency and number of withholding allowances, using IRS Table 5, "Amount for One Withholding Allowance." 3. Subtract that amount from the employee's taxable wages. 4. Locate the percentage method withholding table for the employee's payroll period and marital status and use the formula detailed in the table.

Federal Wage and Hour Law (Fair Labor Standards Act)

The purpose of the FLSA is to protect workers by regulating employment activities of both employers and employees.

What is regular rate of pay?

The regular rate of pay is an hourly pay rate determined by dividing the total regular pay actually earned for the workweek by the total number of hours worked. The required overtime pay under the FLAS is 1 1/2 times the employee's regular rate of pay.

Deferred Compensation

The rules governing cafeteria plans generally prohibit the inclusion of any plan providing for or allowing the deferral of compensation. A cafeteria plan violates this rule if it allows employees to: Carry over unused contributions or benefits from one plan year to another Use contributions from one plan year to purchase benefits the employer will provide in a later plan year An exception for this is for cash or deferred arrangements under a §401(k) plan, which allows employee to contribute part of their salary to a pension or profit sharing plan on a pre-tax basis.

Wages Paid After Death

The tax treatment and reporting obligations for wages paid after an employee's death depend on when the wages are paid in relation to the employee's death. Here are three possible scenarios. 1. If an employee dies after receiving their check but before cashing it, the check should be issued for the same net amount to the employee's representative. The amount is reported on the employee's W-2. Example: An employer pays wages to its employees on Friday, May 11. One of their employees receives their check on that date, but dies on Monday, May 14, before they cash that check. The employer will reissue the check for the same net amount to that employee's representative and it will be reported on the employee's W-2. 2. If the employee is paid wages following his death but in the same calendar year, the wages are not subject to FIT but are taxable for SS, Med, and FUTA. The amounts will display on the employee W-2 and the taxable amount should also be in Box 3 of the Form 1099-Misc in the name of the beneficiary. Example: An employee dies on September 6 and the employer pays wages on September 14. The wages for this employee will not be subject to FIT, but will be taxable for SS, Med, and FUTA and will be reported on the employee's W-2. The taxable amount will also be reported in Box 3 of the Form 1099-MISC. 3. If the employee is paid wages the year following his death, the amount is not subject to taxes and should only be reported in Box 3 of the Form 1099-Misc in the name of the beneficiary. Example: An employee dies on December 21 and the employer pays wages on January 5. These wages are not subject to taxes and will only be reported in Box 3 of Form 1099-MISC in the name of this employee's beneficiary.

Jury Duty Pay

The tax treatment of wages received from an employer for time an employee spends on jury duty depends on the employer's policy. If the employee is paid their regular wage in addition to jury duty pay received from the court, those wages are subject to federal income tax withholding and social security, Medicare, and FUTA taxes. If the employer pays the difference between the employee's regular pay and the jury duty pay, only that difference is subject to federal income tax withholding and social security, Medicare, and FUTA taxes. If the employee is paid wages for time spent on jury duty, but is required to turn over the jury duty pay to the employer, only the difference between the amount paid and the amount turned over is subject to federal income tax withholding and social security, Medicare, and FUTA taxes.

Personal Use of Employer-Provided Aircraft

The value of employee business travel in a company-owned airplane or helicopter is excluded from the employee's income as a working condition fringe benefit. Travel that combines business and personal purposes must be allocated to each. General valuation rule The 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 charter a comparable aircraft and pilot for a comparable flight. Non-commercial flight valuation rule The value of a personal flight where the employer provides the aircraft and the pilot is calculated by using an aircraft multiple based on the weight of the aircraft and a cents-per-mile rate known as the Standard Industry Fare Level.

Group-term life insurance (GTL)

The value of employer-provided group term life insurance up to $50,000 is excluded from an employee's income. The value of coverage in excess of that amount, minus nay amount paid by the employee for their coverage after taxes must be included in the employee's income. he value of the excess coverage is subject to social security and Medicare taxes, but is not subject to federal income tax withholding or federal unemployment (FUTA) tax. At their option, employers may withhold federal income tax on the value. The employee must pay the federal income tax owed with his or her personal income tax return. The value must be reported on the employee's Form W-2 as follows: Boxes 1, 3, and 5 Box 12 - Code C Form 940 (Part 2, Lines 3 and 4) 941 (Lines 2, 5a, 5c, and 5d)

Supplemental Unemployment Benefits

These benefits are provided by many employers with strong unions and substantial plant closings or reductions in force. The IRS regards these benefits as payments made in addition to a laid-off employee's state unemployment compensation benefits and are subject to federal income tax withholding. The payments are excluded from wages subject to social security, Medicare, and FUTA taxes if certain conditions are met.

Study Group Handouts w/ Answers Page 100 How long must the employer keep Forms W-4?

They 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 information on the Form W-4. This is generally the employee's personal income tax return for the last year during which the Form W-4 was in effect, which is due the following April 15.

The McNamara-O'Jara Service Contract Act

This act applies to employers that contract with the federal government to provide services to a federal agency. It applies to contracts over $2,500 and requires that employees be paid prevailing minimum wages and fringe benefits based on the wages and benefits for similar employment in the locality or on a collective bargaining agreement, but no less than the minimum wage under the FLSA.

Contract Work Hours and Safety Standards Act

This act requires contractors with the federal government (not those already covered by Walsh-Healey) to pay employees overtime of at least 1 1/2 times their "basic rate" for hours worked over 40 in a workweek. The law applies to contracts over $100,000.

Define the Walsh-Healey Public Contracts Act

This governs the wages and hours of employees of manufacturers and dealers furnishing the federal government with materials, supplies, and equipment under contracts exceeding $10,000. This act requires covered employees to be paid 1 1/2 times their basic (regular) rate of pay for all hours physically worked over 40 in a workweek. They also must be paid the prevailing minimum wage for work in the same or similar industry in the locality where the goods are manufactured or furnished.

Preferred Provider Organizations (PPOs)

This is a health care delivery system that gives participants a choice of a higher level of benefits and lower out-of-pocket costs if they use doctors who are part of the PPO's network. If they use out-of-network providers, the employees' costs, in terms of deductibles and copayments, are significantly higher.

Reimbursements under an accountable plan - business travel

To be an accountable plan, an expense reimbursement or advance payment program must meet the following conditions: Business connection - reimbursements must be for expenses that are incurred in connection with the performance of services as an employee of the employer. Substantiation - the employee must substantiate his or her business expenses by providing the employer with evidence of the amount, time, place, and business purpose of the expenses within a reasonable period of time after they are paid or incurred. Electronic and Web-based plans are approved - the IRS considers electronic and web-based documents to be adequate substantiation Returning excess amounts - amounts paid by the employer that exceed amounts spent by the employee must be returned to the employer within a reasonable period of time.

Health Maintenance Organizations (HMOs)

This is a health care system that provides health care but does not directly pay for it, as does a health insurance carrier. The HMO provides these health care services on a prepaid basis with employers contributing to the plan on behalf of employees choosing the HMO option. These plans generally do not involve deductibles or complex claim procedures, but they limit members to using HMO doctors and hospitals. There are two types of health maintenance organizations. They are: Traditional HMO - has its own health care facility or facilities and patients have to go there to receive medical services Point-of-Service (POS) - this option allows covered employees and their dependents to use non-HMO health care providers, with the inclusion of deductibles and insurance copayments. Employees and their dependents must select a primary care physician from the POS network, who acts as a gatekeeper and oversee the delivery of all health care services.

Commuting Valuation Method

This method allows an employer to value an employee's personal commuting use of an employer-provided vehicle at $1.50 per one-way commute and $3.00 per round trip if certain conditions are met.

How to compute GTL

To compute the monthly value of excess group-term life insurance to include in an employee's income, the following steps should be taken: 1. Determine the amount of the employee's coverage 2. Calculate the excess benefit over $50,000 3. Divide the excess insurance amount by $1,000 4. Determine the employee's age as of December 31 5. Use IRS Table 2.2 from the IRS Publication 15-B (shown below) or Table I from the Payroll Source to calculate the fair market value 6. Deduct any after-tax contributions by the employee 7. Add the excess amount to the employee's income, withhold and pay social security and Medicare taxes, and report the amount as required. Example: Michelle's employer provides her with a group-term life insurance policy equal to 3 x her annual salary. She is 52 years old and her annual salary is $70,000. She does not contribute toward this policy. 1. 3 x $70,000 = $210,000 2. $210,000 - $50,000 = $160,000 3. $160,000 ÷ $1,000 = 160 4. 160 x $0.23 (From table) = $36.80 per month of taxable income If Michelle's employer calculates this taxable amount each pay period, then another step would be needed. For example, if Michelle is paid biweekly and her employer adds this taxable amount each pay period, then the next step would be: $36.80 x 12 months = $441.60 (annual amount) ÷ 26 pay periods = $16.98 per pay

Tax Treatment of Contributions and Benefits - Social security, Medicare, and FUTA requirements

To exclude employer contributions from employment taxes, the payments must be made under a plan, which can be shown by the following: 1. The plan is written or is otherwise made known to employees 2. The plan is referred to in an employment contract involving the employees 3. Employees contribute to the plan 4. Employer contributions are made to a fund that is separate from the employer's salary accounts; or 5. The employer is required to make the contributions. W-2 reporting of employer-sponsored health coverage Employers are required to report the total cost of employer-sponsored health coverage on employees' Forms W-2. All employers that provide applicable employer-sponsored coverage during a calendar year are subject to the reporting requirement. The aggregate reportable cost of employer-sponsored health insurance is reported on Form W-2 in Box 12, using code DD. The aggregate reportable cost includes both the portion of the cost paid by the employer and the portion of the cost paid by the employee, regardless of whether the employee paid for that cost through pre-tax or after-tax contributions.

Temporary Help Agency Employees

To help with short-term staffing needs, many employers use workers hired through temporary help agencies. The client pays the agency, not the employee as the EE is the employee of the agency only.

Nondiscrimination Testing - Cafeteria Plan

To qualify for favorable tax treatment for all cafeteria plan participants, the plan must not discriminate in terms of eligibility, contributions, or benefits in favor of highly compensated individuals, or participants, or key employees.

Constructive Receipts

Under federal regulations, employers must withhold federal income tax, social security tax, and Medicare tax when the employee is "actually or constructively paid," not when the wages are earned and become payable. When an employee is provided with cash or a check on payday that is dated that day and can be cashed at a local bank, it's easy to determine when they're paid. But what if they're not actually paid on payday? For example, what if the employee is out sick or on vacation on payday? Under the principle of constructive receipt, an employee is considered to have been paid wages when the wages have been made available to the employee without substantial limitation or restriction.

Free or Discounted Commercial Flights

Under the commercial flight valuation rule, the value of a space available or stand-by flight for relatives of airline employees when they do 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.

Individual Coverage (FLSA)

Under the individual employee coverage test, an employee is covered by the FLSA if he or she is engaged in interstate commerce or in the production of goods for interstate commerce. It does not matter if the business is not a covered enterprise, so long as the employee's job is in interstate commerce.

Enterprise Coverage (FLSA)

Under this coverage test, all the employees of a business are covered and protected by the FLSA if: 1) at least two of the employees of the business are employed injobs closely related and directly essential to interstate commerce or the production of goods for interstate commerce; and, 2) the business has annual gross sales of at least $500,000. Certain businesses are specifically covered by the FLSA regardless of annual sales volume. They include: Hospitals, nursing homes, elementary and secondary schools and colleges and public government agencies.

Annual Lease Valuation Method

Under this method, the fair market value of an employee's personal use of a company-provided vehicle is determined by multiplying the annual lease value of the car by the percentage of personal miles driven. Here are the steps the employer must take: 1. Determine the fair market value of the car as of the first day it was made available to any employee for personal use. 2. Find the car's fair market value on the IRS Annual Lease Value Table. 3. Calculate the percentage of personal miles driven during the year (personal miles ÷ total miles). 4. Calculate the fair market value of the employee's personal use of the car (Annual Lease Value x percentage of personal miles driven. Note about fuel - the cost of fuel is not included in the annual lease value. Therefore, if an employer is paying for the employee's fuel, they can either determine the value by using the actual cost of the fuel or an IRS-approved rate of 5.5 cents ($.055).

Traditional Health Insurance Plans

Under this plan, the employer can either self-insure or purchase coverage from a third party. If they self-insure, they would pay claims to employees or health care providers from their own insurance fund. If they buy coverage from a third-party insurance carrier, then they would then pay premiums to the insurer, which would then reimburse the employee for medical expenses.

Employer-Paid Taxes (Grossing Up)

When an employer pays an employee's taxes, the amount paid is an employer-provided benefit. The taxes paid on the employee's behalf are also taxable income to the employee. Because this could result in taxes accumulating to no end, a common procedure approved by the IRS is to "gross up" the payment to include the taxes in the gross pay. Gross amount = [Desired net payment ÷ (100%-Total tax %)] Assuming the payment will not push the employee's year-to-date wages over the social security wage limit for the year, here is how it would work. Example Paul's employer is providing him with a net bonus in the amount of $1,000. Paul's year-to-date wages are $48,000 and this bonus will be subject to a state income tax rate of 4.00%. As we'll see in Section 6, the standard federal supplemental rate for bonuses is 25%. 1. 25% (FIT) + 6.2% (SS) + 1.45% (Medi) + 4.00% (SIT) = 36.65% 2. 100 - 36.65% = 63.35% 3. $1,000 ÷ 63.35% = $1,578.53 (Gross Bonus Amount) 4. Double check! $1,578.53 x 25% = $394.63 (FIT) $1,578.53 x 6.2% = $ 97.87 (SS) $1,578.53 x 1.45% = $22.89 (Medi) $1,578.53 x 4.00% = $63.14 (SIT) Total Taxes = $578.53 $1,578.53 - $578.53 =$1,000 When social security wage limit will be met When the bonus will put the employee's year-to-date wages over the social security limit, some extra steps must be taken. Example Sara's employer is providing her with a bonus in the amount of $5,000. Sara's year-to-date wages are $117,000 and this bonus is subject to a state income tax rate of 3.5%. 1. Determine how much of the bonus will be subject to social security SS Limit $118,500 - $117,000 = $1,500 (amount of bonus subject to SS) 2. Calculate the social security tax on that part of the bonus $1,500 x 6.2% = $93 3. Add the social security tax to the desired net $5,000 + $93 = $5,093 4. Add remaining tax percentages 25%(FIT) + 1.45%(Medi) + 3.5%(SIT) = 29.95% 5. Subtract the amount above from 100 100% - 29.95% = 70.05% 6. Take desired net from #3 above and divide it by amount in #5 $5,093 ÷ 70.05% = $7,270.52 7. Double check! $7,270.52 x 25% =$1,817.63 $7,270.52 x 1.45% =$ 105.42 $7,270.52 x 3.5% =$ 254.47 $1,500 x 6.2% =$ 93.00 Total Taxes =$2,270.52 $7,270.52 - $2,270.52 = $5,000

Golden Parachute Payments

When companies change ownership, key executives are often provided with "golden parachutes" to soften their landing should they be terminated by the new owner. Under the IRC, a parachute payment is compensation paid to an officer, shareholder, or highly compensated employee only after a change in corporate ownership or control that is at least three times the employee's average compensation during the five most recent tax years. An excess parachute payment is the portion of the parachute payment that exceeds the employee's five-year average compensation The entire payment is wages and is subject to federal income tax withholding and social security and Medicare taxes. The excess parachute payment is also subject to a 20% excise tax the employer must withhold. The employer must report the payment on Form W-2, with the withheld excise tax entered in Box 12, preceded by Code K.

Moving Expenses

When employees are relocated from one workplace to another or move to begin a new job, the employer often pays for the costs of the move, either directly or by reimbursing the employee for moving expenses. Generally, if an employer reimburses an employee or pays a third party directly for moving expenses that qualify for a tax deduction, the amount reimbursed or paid is not included in the employee's income. All other amounts paid or reimbursed must be included in income and are subject to federal income tax withholding and social security, Medicare, and FUTA taxes. Distance and Time Tests Before any expenses of a job-related move can be considered deductible and reimbursements for them excluded from income, two tests must be met: Distance test - the new workplace must be at least 50 miles farther from the employee's old residence than the previous workplace was Time test - During the 12-month period immediately following the move, the employee must work full-time for at least 39 weeks in the general location of the new workplace. If the employer reasonably believes the employee will meet these two tests, payments made to a third party or reimbursements made to the employee for the move are not included in income as long as the expenses themselves meet the tests for deductibility. Deductible moving expenses There are only two types of deductible moving expenses - transportation and in-transit storage of household goods and personal effects, and traveling from the old residence to the new residence (including lodging, but not meals). Transportation of household goods - all reasonable expenses incurred in packing and moving household goods and personal effects to the new residence Expenses of traveling from old home to new home - 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. Mileage at a rate of $.19 (19 cents) per mile

Back Pay Awards

When employees win lawsuits or settlements against their employer for alleged violations of federal and state employment laws, the amounts awarded are often considered to be back pay for wages unlawfully denied. While there can be confusion as to whether or not these awards should be included in an employee's income and subject to taxes, the IRS has stated that back pay received in satisfaction of an employment discrimination claim is included in gross income because it is not received on account of personal physical injuries or physical sickness. As a result, back pay is wages subject to federal income tax withholding and social security, Medicare, and FUTA taxes, and should be reported as such on Form W-2.

Sick Pay Payments made by employer's agent

Where the employer contracts with a third party to administer its disability plan and pays the third party on a cost-plus-fee basis while retaining the insurance risk (i.e., no premiums are paid to the third party), payments made to disabled employees by the third party are treated as if made by the employer. The third-party agent may treat the payments as supplemental wages for federal income tax withholding purposes and withhold at the optional flat rate of 25% if it is not an agent that also pays regular wages to the employee.

Sick Pay Payments made by a third party who is not an agent

Where the employer contracts with a third-party insurer to make disability payments to its employees and the third party bears the risk of insuring the employees, it assumes a greater role. The third party is not required to withhold federal income tax from payments made to a disabled employee unless the employee submits a Form W-4S. The third party must withhold and pay over the employee's share of social security and Medicare taxes for each payment made within 6 months after the end of the last month the employee worked for the employer. The third party is also responsible for the employer's share of social security and Medicare taxes and FUTA.

Sick Pay Payments made by employer

Where the employer's plan is self-insured, meaning the employer bears the insurance risk, and the employer makes the payments, the employer must withholding federal income tax based on the employee's most recent Form W-4. The employer must also pay its share of social security and Medicare taxes, withhold the employee's share of those taxes, and pay FUTA tax for all payments made within 6 calendar months after the end of the last month during which the employee worked for the employer.

Financial Control

Whether the worker has unreimbursed business expenses; whether the worker has a substantial investment in the work; whether the worker's services are available to the public; how the worker is paid; and, whether the worker can realize a profit or incur a loss.

Reporting Requirements - Cash or deferred arrangements

While pre-tax contributions to a 401(k) plan are not subject to federal income tax withholding, they are subject to social security, Medicare, and FUTA taxes. Therefore, they must be reported on the employee's Form W-2 in Boxes 3 and 5, respectively, with the amounts withheld reported in Boxes 4 and 6. The elective deferrals must also be reported in Box 12, preceded by Code D.

Common Law Test

Worker classification test to determine if a worker is an employee or independent contractor. The key is the right to control and can be grouped into three general types or categories.

Workers' Compensation Insurance

Workers' compensation is a form of insurance employers are generally required to buy to protect them should lawsuits be brought by employees who are hurt or become ill while working. Payments received as workers' compensation benefits are not included in an employee's gross income and are not subject to any employment taxes. Each state has its own workers' compensation law setting premium rates and benefits, assigning classification codes, and determining what types of employee compensation are included in the calculating premiums.

Should a returned copy of Form W-2 be retained for at least 4 years?

Yes.

Should the amount and date of an employee's wage payments be retained for at least four years?

Yes.

Should the employee's collective bargaining unit be retained for at least three years?

Yes.

An individual with an expressive communication style is described as one who?

enjoys speculating on possibilities before getting down to the facts.

The first step taken when giving employees the latitude to develop their own methods of achieving results is to?

establish the desired results.