MASTERING PAYROLL

HOMEWORK EXERCISES
Section 1EMPLOYEES V. NONEMPLOYEES.
For all exercises, assume the year is 2018 unless otherwise stated.

1. ABC Corporation uses different categories of workers. In the table below, list the six
categories and indicate with a Yes or No whether ABC Corporation is responsible for FITW,
FICA or FUTA on these workers’ wages.

Type of worker FITW FICA tax FUTA tax

Common-law Employees Yes Yes Yes
Statutory Employees No Yes Yes
Statutory nonemployees No No No
Independent contractors No No No
“Temps” from an agency No No No
Leased Employees No No No

2. In the table below, fill in each column. In the FICA tax column, circle who pays the tax. In
the FUTA tax column, indicate who pays the FUTA: employer, employee or worker. If no
FUTA tax is due, write “NA” (not applicable).

Type of worker FICA tax Tax rate FUTA tax

(percentage)
Employer 7.65%
Common-law Employees Employer
Worker/Employee
Employer 7.65%
Statutory Employees Employer
Worker/Employee
Employer 7.65%
Statutory nonemployees N/A
Worker/Employee
Employer
Independent contractors N/A
Worker/Employee N/A
Employer Employer
“Temps” from an agency
Worker/Employee 7.65%
Employer Employer
Leased Employees
Worker/Employee 7.65%

3. Every August, Breckim, Inc.’s secretary Amy goes on vacation for 2 weeks, and her brother
Jim fills in for her.
a. For payroll purposes, which category of worker is Jim?
Temps from agency
b. Should Breckim withhold any taxes from Jim? If yes, which taxes?
State Income tax, Federal Income, Social Security and Medicare Tax.
c. Does Breckim owe any employment taxes on the amounts it pays Jim?
Yes, Breckim owes employment taxes on the amount it pays Jim, included FIT and FICA.

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© 2018 American Institute of Professional Bookkeepers

4. Sotto Industry’s receptionist, Hector, goes on vacation for 1 week in the summer and a
second week in the fall. During Hector’s absence, Sotto calls a temp agency, which sends
Barbara to fill in for him.
a. For payroll purposes, what category of worker is Barbara?
Temporary or seasonal worker
b. Should Sotto withhold any taxes from the temp’s pay? If yes, which taxes?
Yes, Stata income and FICA
c. Does Sotto owe any employment taxes on the amounts it pays the temp?
Yes.

5. Kwan, a licensed real-estate agent, works for the HomeCo real estate agency. Kwan is
compensated solely by a commission, which is 6% of the sales price on the properties she
sells.
a. For payroll purposes, which category of worker is Kwan?
Independent Contractor
b. Should HomeCo withhold any taxes from Kwan? If yes, which taxes?
No
c. Does HomeCo owe any taxes on the amounts it pays Kwan?
No, if she work as independent contract.
Yes, if she is employee of HomeCo

6. Lashawn’s father, James, broke his hip and requires 24-hour in-home assistance. Lashawn
hires Allison, a certified personal nurse, to take care of James.
a. For payroll purposes, which category of worker is Allison?
She is employee because she work under of someone which provide a personal service.
b. Should Lashawn withhold any taxes from Allison? If yes, which taxes?
FICA
c. Does Lashawn owe any taxes on the amounts he pays Allison?
FICA AND FUTA

7. After working for Xyleen Industries for years, Eric was laid off in 2018. Currently self-
employed, Eric occasionally fills in at Xyleen, doing the same work he did before he was
terminated.
a. For payroll purposes, which category of worker is Eric?
Self-employeed
b. Should Xyleen withhold any taxes from Eric’s pay? If yes, which taxes?
No
c. Does Xyleen owe any taxes on the amounts it pays Eric?
N/A

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Section 2FEDERAL AND STATE WAGE-HOUR LAW

For all exercises, assume the year is 2018 unless otherwise stated.

1. Define mom and pop shops under federal law. Are they required to pay the minimum wage
and overtime?

Used to describe a small business run or owned by family. Employers maybe exempt from
the requirement to pay minimum wage and overtime.

2. Calculate the required pay for each employee under FLSA.

a. One week in February, Andy works 40 hours. His state’s minimum wage is $6 an hour.
$240
b. One week in April, Ronnell works 38 hours. Her state’s minimum wage is $6.75 an hour.
256.60
c. One week in May, Christie works 30 hours. Her state’s minimum wage is $8 an hour.
$240
d. One week in June, Jamie works 40 hours. His state has no minimum wage.
$40 x 7.25= $290
e. One week in August, Cho works 30 hours. Her state’s minimum wage is $7 an hour.

$30 x 7= $210
f. One week in February, Frank works 40 hours. His state’s minimum wage is $7.95 an
hour.
$318
g. One week in March, Gina works 40 hours. Her state has no minimum wage.
$40x7.25 = $290

3. Calculate the pay for each of the following under federal wage-hour law:
a. Andrea, a waitress, earns $2.13 an hour, plus tips. One week in January, Andrea works 40
hours and earns $210, including $85.20 in wages and $124.80 in tips. How much must
Andrea’s employer pay her for the week?
40x $7.25 (minimum wages)= 290
290 – 210 = 80
Amount employer’s pay her for the week is $80
b. Jose, a waiter, is paid $2.13 an hour, plus tips. One week in March, he works 30 hours
and earns $240, including $63.90 in wages and $176.10 in tips. How much must Jose’s
employer pay him for the week?
30 x 7.25 = 217.50
Since he earned more than the minimum wage, the employer no need to pay Jose
anymore.

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c. Cameron, a waitress, is paid $2.13 an hour, plus tips. One week in March, she works 30
hours and earns $200, including $63.90 in wages and $136.10 in tips. How much must
Cameron’s employer pay her for the week?
7.25 x 30 = 217.50
217.50 – 200 = $17.50
Amount employer’s pay her for the week is $17.50
d. Darrell, a valet parker, is paid $2.13 an hour, plus tips. One week in April, he works 32
hours and earns $250, including $68.16 in wages and $181.84 in tips. How much must
Darrell’s employer pay him for the week?
32 x 7.25 = 232
The employee earn more than the minimum pay.
4. Is escheat law a federal or state law? What does escheat law cover? What does it require of
employers?
Escheat Law is state law. Its cover unclaimed assets, or property, including
wages. Its require report when property has been abandon or unclaimed after a period of
time by state law- often five years.

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Section 3  PAYING EMPLOYEES UNDER FEDERAL LAW

For all exercises, assume that the year is 2018 unless otherwise stated.

1. MadCo’s policy is to deduct 1 hour of pay when an employee punches in 5 or more

minutes late. One week in April, employee Bob, who is paid $7.25 an hour, punches in 5
minutes late one day and 10 minutes late another but is on time the other 3 days. Bob
works 40 hours that week and MadCo docks him 3 hours’ pay. How much must MadCo
pay Bob for the week?

37 x 7.25 = 268.25

But the minimum wage is 290 per week so they must pay him 4290.

2. For each of the following, give the number of hours the employee must receive straight pay
and overtime pay for the week and total pay for the week.
a. On Monday and Thursday, Plumbing Inc. employee Ramon drives home in the company
van so that he can respond to emergency calls. He works 46 hours for the workweek,
including 4 hours’ travel from his home to emergency calls.
They should compensated for 46 hours including 4 hour’s travel
b. Grace’s 40-hour workweek is M–F. On Sunday, she eats a bad clam, so she stays home
Monday and works a half-day on Tuesday, for which she is paid 12 hours’ sick leave. On
Friday, she works an extra 3 hours.
They should pay her I full 40 hours + 3 hours overtime.
d. One Friday, Harold, who normally works a 40-hour, M–F week, leaves early to pick up
his daughter, having worked 37 hours for the week. The following week he works 43
hours.
He should be paid 37 hours for the first week and 40 hours + 3 hours overtime for the
second week.

3. Compute gross wages due each employee under federal wage-hour law:
a. Ryan is normally paid $1,000 for a 40-hour workweek. One week, he works 46 hours.
$1,225
b. Derrick is normally paid $414 for a 36-hour workweek. One week, he works 40 hours.
$460
d. Lisa is normally paid $900 for a 30-hour workweek. One week, she works 40 hours.
$1,200

5. Compute gross wages due each employee under federal wage-hour law:
a. Latisha is normally paid $1,200 for a 40-hour workweek. One Monday she is out sick but
receives 8 hours sick pay. She then works 40 hours Tuesday–Friday.
1,200/40=30

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1,200 + (8 sick day * 30) = 1,440

b. Al is normally paid $500 for a 40-hour workweek. One week, he works 45 hours.
$593.75
d. Lee is normally paid $1,500 for a 40-hour workweek. To make up for leaving early one
Friday, he works 44 hours this week.
$1,725

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Section 4EMPLOYMENT RECORDS AND PAYROLL RECORDKEEPING

1. What four documents must employers collect at time of hiring or obtain from the
employee after hiring?

Security card, Form W-2, Age Certificate, Form I-9

2. What is the purpose of Form I-9, and who completes it?

Its required under the Immigration Reform and Control Act 1986 to prove employee
identity and authorization to work in the U.S. Both employee and employer responsible
to complete this form.

3. Which documents provide both an employee’s proof of identity and authorization to work
in the United States?

Form I-9

4. Which documents provide proof of identity, but not authorization to work in the U.S.?

 Driver License

 School ID

 Voter register card

 U.s military Card or draft record

 ID issued by federal, state or local government.

5. Which documents substantiate an employee’s authorization to work in the United States

but not proof of identity?

 Employment Authorization Document (Form I-766)

 Form I-94

 U.S passport

 Permanent resident card

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6. On August 3, 2017, Becky completes a W-4. On February 13, 2018, she submits a new
W-4 claiming 3 more exemptions. Until what date each of Becky’s W-4s be retained?

For Becky’s W-4s, each should be retained for at least 4 years after the tax due
date for the last year she was employed.

7. Until what date must an employer retain the following documents?

a. W-2s issued to employees for 2018. At least 4 years
b. A 2017 Form 940 filed on January 31, 2018. At least 4 years
c. A former employee’s 2016 W-2 that had been returned as undeliverable .
They shoud verified the address with th employee and retain it at least 4 years. They
should keep it until 2021
d. A W-4 submitted on March 9, 2017 March 9, 2021
e. Employment applications One year
f. A cancelled check remitting payroll taxes for September 2013
They should retain it until September 2017
g. An I-9 for an employee an employee who was hired September 9, 2015 and quit
December 7, 2017
They should retain it 3 years after the date of hire.
h. An I-9 for an employee hired March 14, 2017 and fired November 14, 2018
They should retain it until Nov 14, 2019

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Section 5EMPLOYEE DATA: FORM W-4 AND STATE WITHHOLDING

0ALLOWANCE CERTIFICATES

1. How long does a new employee have to submit a completed W-4? How must the
employer withhold FIT until the W-4 is received from a new employee?

The new employee must submit a complete W-4 as soon as possible. Until a W-4 is
received, an employer must withhold federal income tax as if the employee is
single with no adjustments.
2. On March 5, 2018, Mischa submits a new W-4. If payday is Friday, what is the date of
the first paycheck that must reflect Mischa’s new W-4?
The first paycheck reflecting Mischa's new W-4 submitted on March 5, 2018,
must be dated April 6, 2018, assuming payday is Friday.

3. On March 28, 2018, Paul submits a new W-4. If Paul is paid on the last weekday of each month,
what is the date of the first paycheck that must reflect Paul’s new W-4?
4. On October 3, 2018, Janet starts a part-time job. She did not owe federal income tax in 2017
and does not expect to earn enough to pay federal income tax for 2018, so she claims exempt
from federal income tax withholding on her 2018 Form W-4. Does Janet need to submit a W-4
in 2019? If so, by when—and how does her employer withhold if she does not do this?

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Section 6HOW EMPLOYERS WITHHOLD AND DEPOSIT FEDERAL TAXES

1. Don is paid $10,000 a month—$5,000 on the 15th, and $5,000 on the last day of the month.
As of October 31, 2018, Don’s year-to-date FICA wages are $100,000. How much FICA
must Don’s employer withhold from his pay dated December 14, 2018?

382.50

2. As of Friday, July 20, 2018, Ray’s year-to-date wages, including bonuses, are $128,200. How
much FICA must Ray’s employer withhold from his pay for the next pay day on Friday, July
27, 2018 assuming his salary is $2,000?

3. Use the 2018 Payroll Tax Withholding Tables from IRS Pub. 15, Circular E (see Mastering Payroll,
Section 6), compute FITW for the following:

a. Sandy is married, claims 3 allowances on her W-4 and is paid $645 a week.
$39
b. Zhang is single, claims 1 allowance on his W-4 and is paid $1,890 every 2 weeks.
$258
c. Sofia is single, claims 4 allowances on her W-4, and is paid $1,700 every 2 weeks.
$218
d. Carlo is married, claims 6 allowances on his W-4 and is paid $1,350 a week.
$140

e. Gene is single, claims zero allowances on his W-4 and is paid $659 every 2 weeks.
$40

4. Which of the following employees is subject to FITW? to FICA? Answer “yes” or “no” in the
spaces provided.

FITW FICA
a. Dennis, a senior in high school, is 17 years old and works part- Yes No
time after school and on weekends for his father, a CPA whose
practice is a sole proprietorship.
b. Evita, 15 years old, works part-time at her father’s bakery, which Yes Yes
her father runs as a partnership with his cousin.
c. Patty, age 19, a full-time college student, lives at home with her Yes No
parents and her disabled 10-year-old brother. Patty’s parents pay
her to take care of her brother.
d. Debbie and Dave work full-time and pay Dave’s mother, Tina, to Yes No
come to their home and watch the grandchildren after school.

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6. When is an employer not required to deposit federal employment taxes electronically?

New employers are not immediately required to use the Electronic Federal Tax Payment
System (EFTPS) but are encouraged to enroll in EFTPS upon starting their business.

The IRS may grant a waiver from electronic deposit requirements for employers who can
demonstrate that electronic deposits would cause undue hardship.

7. What is the Form 941 lookback period? To which employer tax liabilities does it apply? How
is it used to determine an employer’s deposit frequency in 2018?

The Form 941 lookback period is the 12-month period ending on June 30 of the prior
year, used to determine an employer's federal tax deposit frequency. It applies to
taxes reported on Form 941, including withheld income tax, and social security and
Medicare taxes. For 2018, if the total tax liability during the lookback period was
$50,000 or less, the employer is a monthly depositor; if more than $50,000, they're a
semi-weekly depositor.

7. For each of the following scenarios below, determine whether the employer is a monthly,
semiweekly or annual depositor for 2018 and check the appropriate box.

Semi-
Monthly weekly Annual
a. AAA begins operation on March 1, 2018, and Yes No Yes
anticipates a 2018 Form 941 tax liability of
$5,000.
b. BBB was started in 1992. For the lookback period No Yes No
ending June 30, 2017, BBB’s cumulative tax
liabilities were $45,000.
c. CCC started up in 2005. For the lookback period No Yes No
ending June 30, 2017, CCC’s cumulative tax
liabilities were $75,000.
d. DDD began doing business in 2006. For the No Yes No
lookback period ending June 30, 2017, DDD’s
cumulative tax liabilities were $45,000. DDD’s
941 tax liability for one payroll period in March
2018 was $103,550.
e. EEE began hiring in 2000. For the look-back No Yes No
period ending June 30, 2017, EEE’s cumulative
tax liabilities were $29,000. EEE’s tax liability
for one payroll period in January 2018 is
$100,050.
f. FFF starts up in October 2018 and expects a 941 Yes No Yes

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tax liability of $2,000 through the end of 2018.

8. Determine when each of the following must deposit its Form 941 tax liabilities.
a. Quikstep, a monthly depositor, pays employees on Friday. The total 941 deposit
obligation for wages paid on Apri1 20, 2018, is $2,400.
b. Slowque, a monthly depositor, pays employees on Friday. Its total 941 deposit obligation
for wages paid on September 7, 2018, is $2,000.
c. BigTime, a semiweekly depositor, pays employees on Friday. BigTime’s 941 deposit
obligation for wages paid on Friday, July 6, 2018, is $12,400.
d. Lopez Bros., a monthly depositor, pays employees on the 15th and last day of the month. Its
941 deposit obligation for wages paid on June 29, 2018, is $112,400.
9. Determine when each company must pay its 941 deposit shortfall to avoid penalties.
a. Dallas DCS, a monthly depositor, discovers a 1.0% shortfall in its deposit of 941
liabilities for April 2018.
b. Chic Shop, a monthly depositor, discovers a 1.95% shortfall in its deposit of 941
liabilities for October 2018.
c. Baby Bits, Inc., a semiweekly depositor, discovers a 0.5% shortfall in its deposit of 941
liabilities for August 2018.

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Section 7FEDERAL EMPLOYMENT REPORTING FORMS AND DUE DATES

1. Cajun Corporation has 10 employees. Nine are paid $35,000–$50,000 a year and one is paid
$5,000. Compute Cajun’s FUTA liability for 2018 if:

a. Cajun fails to pay its SUI for the year. $4,216

b. Cajun pays SUI timely and in full throughout the year, and it is subject to a 1.4% FUTA
credit reduction for the year. $544
2. Ron Myers’s sole proprietorship pays each of its six full-time employees more than $20,000 a
year. Compute Ron’s FUTA liability for 2016, if:

a. The proprietorship is subject to a 1.4% FUTA credit reduction. $2,604

b. The proprietorship pays SUI timely and in full throughout the year and is not subject to a
FUTA credit reduction. $336

3. What is the due date for a company’s FUTA tax if its FUTA tax liability is:
a. $755 as of March 31. No later than April 30
b. $476 as of June 30. Until January 31
c. $960 as of September 30 October 31
d. $260 as of December 31. January 31
e. $620 as of December 31. January 31

4. What is the due date for filing the second quarter 941?

Normally due on the last day of the month or last day of the quarter or July 31,if it falls on a
weekend then the due date is the next business day.

5. What types of taxes are reported on Form 945? When is the 2018 Form 945 due?

Interest, Dividends, Pension, Annuities.

The due date would be Jan 31, 2019

6. For tax year 2018, provide the date by which the W-2 is due to each of the following:
a. A current employee
b. The Social Security Administration
c. An employee whose last day of work was April 9, 2017

7. When is the tax year 2018 W-3 due for each of the following:
a. Paper W-2s filed with the SSA?
b. W-2s filed electronically?
c. An employer with 300 employees?

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Section 8WHEN WAGES BECOME TAXABLE

1. In which year are wages taxable for each of the following?
a. An employee is paid weekly each Friday. For the period ended December 22, 2017, he is paid
Friday, December 29, 2017, but does not claim his check until January 5, 2018.

The wages are taxable in 2017 because they were made available to the employee on
December 29, 2017, despite the employee not claiming the check until 2018.

b. Bonus checks given out December 29, 2017, postdated to January 5, 2018.
The bonuses are taxable in 2018, as the postdate on the checks indicates that they
were not available to the employees until January 5, 2018
c. Checks dated December 29, 2017, distributed to employees January 5, 2018,
The wages are taxable in 2018 because the checks were not distributed (and thus
not available to the employees) until January 5, 2018, despite being dated
December 29, 2017.

Section 9OTHER REPORTING RULES

For all of the following questions, assume it is tax year 2018.

Note: Students are not required to know any state-by-state due dates, percentages, ceilings, etc.,
for the national certification exam. The purpose of these exercises, the answers for which can be
looked up in the workbook, is to underscore the fact that rules and dates for each state vary from
the federal ones.

1. By what date must a Pennsylvania employer submit Copy 1 of Form W-2 to the Pennsylvania
state income tax agency?

2. By what date must a New Jersey employer submit Copy 1 of Form W-2 to the New Jersey
state income tax agency?

3. By what date must employees receive Form W-2, Copy 2, if they work in:
d. California
e. New Jersey

4. Who is required to file Form 1099-MISC, and what triggers the requirement to file?

Businesses must file Form 1099-MISC for each person to whom they pay $600 or more in
rents, services, prizes, medical payments, crop insurance proceeds, cash for fish, or legal
services within a year, or at least $10 in royalties or broker payments. It's also required for
direct sales of $5,000 or more of consumer products for resale.

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Section 10 PAYROLL ENTRIES

1. On February 13, ABC Corporation pays 20 employees total wages of $50,000, withholding
$12,300 FIT, $3,825 FICA and $200 union dues. FUTA is $370. Prepare the following
journal entries:
a. Payment of employee salaries, including deductions.
Salaries Expense $50,000 (Total wages)
Withholding Taxes Payable (FIT) $12,300
FICA Taxes Payable $3,825
Union Dues Payable $200
Cash $33,675

b. ABC Corporation remits its payroll taxes

FICA Taxes Payable $3,825

FUTA Taxes Expense $370
Cash $4,195

c. ABC Corporation remits employee union dues

Union Dues Payable $4,200
Cash $200

2. On December 30, Drake Corporation pays wages of $15,000, from which it withholds $1,148
Medicare and $1,340 FITW. FUTA tax is $120 and SUI, $440. Prepare the following journal
entries:
d. Payment of employee salaries, including deductions.
Salaries Expense 15,000
Medicare Taxes Payable 1,148
WH Taxes Payable 1,340
Cash 12,512
e. Drake’s payroll tax expense
Payroll Taxes Expense 560
FUTA taxes payable 120
SUI Taxes Payable 440
f. Drake remits its payroll taxes
Medicare taxes payable 1,148
FUTA Taxes Payble 120
SUI taxes payable 440
Cash 1,708

3. On December 15, Zook Enterprises pays wages of $67,000, from which it withholds $5,126
Medicare, $9,640 FIT and $7,181 for health insurance premiums. Zook’s share of the health

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insurance premium for the period is $21,544. FUTA is $520; SUI, $2,080. Prepare the
following journal entries:
a. Payment of employee salaries, including deductions
b. Zook’s payroll tax expense
c. Zook remits its payroll taxes
d. Zook pays the health insurance premium

Homework Exercises 16