Core Payroll Concepts
24%of exam
Compliance / Research and Resources
14%of exam
Calculation of the Paycheck
22%of exam
Payroll Process and Supporting Systems
14%of exam
Payroll Administration and Management
10%of exam
PoliciesStaffingServiceGovernance
Audits
8%of exam
Audit TrailSegregationReconciliationException Testing
Accounting
8%of exam
Journal EntryLiabilitiesAccrualsReconcile
Quick Facts
- Credential
- Certified Payroll Professional; PayrollOrg
- Current outline
- Effective September 5, 2026
- Questions
- 190 total; 165 scored, 25 pretest
- Time
- 4 hours
- Passing scale
- 300 scaled; no fixed raw percentage
- Exam tax law
- Federal law: January 1, 2026
- Core + calculation
- 24% + 22% = 46%
- 2026 SS base
- $184,500
- 2026 Medicare
- 1.45% each; no wage cap
Worker Status Factors
Behavior, finances, relationship
ControlInvestmentContract reality
Employee vs Contractor
Employee
- Common-law control present
- Withhold applicable employment taxes
Contractor
- Independent business relationship
- Report eligible nonemployee compensation
Substance controls over contract label
Worker Status and Tax Consequence
- Company directs work details→Test employee classification(Review common-law control factors)
- Worker runs independent business→Test contractor classification(Label alone never controls)
- Status remains uncertain→Consider Form SS-8(IRS determination request)
- Worker is employee→Apply payroll withholding(Issue Form W-2)
- Worker is true contractor→Check Form 1099-NEC(Apply reporting threshold)
- Employee was misclassified→Assess employment-tax correction(Check intentional-disregard facts)
- Misclassification was unintentional→Evaluate IRC §3509(Required returns affect rates)
- Social Security liability calculated→Apply annual wage base(Medicare generally uncapped)
Worker Status
- Employee
- Subject to applicable payroll withholding
- Contractor
- Status depends on actual relationship
- Common-law control
- Behavioral, financial, relationship factors
- Form SS-8
- IRS worker-status determination request
- Form W-2
- Employee wage statement
- Form 1099-NEC
- Nonemployee compensation reporting
- Exempt status
- Requires applicable duties and pay tests
- Nonexempt status
- Eligible for FLSA overtime
- IRC §3509
- Unintentional misclassification; reduced employer liability
- §3509 required returns filed
- FIT 1.5%; employee FICA factor 20%
- §3509 required returns missing
- FIT 3%; employee FICA factor 40%
- §3509 Social Security
- Still subject to annual wage base
Exempt vs Nonexempt
Exempt
- Meet applicable duties test
- Meet applicable pay requirements
Nonexempt
- Track compensable hours
- Pay overtime after 40 federally
Salary alone does not establish exemption
FLSA Hours
- Workweek
- Fixed recurring 168-hour period
- Federal overtime
- Nonexempt: over 40 weekly
- Overtime rate
- At least 1.5× regular rate
- Regular rate
- Included remuneration ÷ hours worked
- Nondiscretionary bonus
- Generally included in regular rate
- Discretionary bonus
- Excludable only when genuinely discretionary
- Meal period
- Unpaid only when duty-free
- Unauthorized work
- Compensate if employer permits
- State law
- Apply more protective requirements
Taxable Benefits
- Nonexcluded fringe
- FMV less employee payment
- Accountable reimbursement
- Business nexus; substantiate; return excess
- Nonaccountable allowance
- Usually taxable wages
- Section 125 election
- Qualified pretax benefit treatment
- 2% S-corp shareholder
- Special health-benefit income rules
- Group-term life
- Imputed income above eligible $50k
- Employer HSA contribution
- Generally excluded when qualified
Monthly vs Semiweekly Deposits
Monthly
- Lookback ≤$50k
- Following month’s 15th
Semiweekly
- Lookback >$50k
- Payday determines deposit day
$100k next-day rule overrides both
Federal Deposit Timing
- Determine current deposit schedule→Check applicable lookback period(Form 941 standard lookback)
- Lookback tax ≤$50k→Monthly schedule(Usually following month’s 15th)
- Lookback tax >$50k→Semiweekly schedule(Depends on payday weekday)
- Semiweekly payday Wednesday–Friday→Deposit following Wednesday(Business-day adjustments apply)
- Semiweekly payday Saturday–Tuesday→Deposit following Friday(Business-day adjustments apply)
- Liability reaches $100k in period→Deposit next business day(Overrides normal schedule)
- Liability is FUTA→Apply separate FUTA rules(Do not use 941 schedule)
- Return preparation begins→Reconcile deposits with Form 941(Investigate mismatched liabilities)
Deposits
- 941 lookback ≤$50k
- Monthly federal deposit schedule
- 941 lookback >$50k
- Semiweekly federal deposit schedule
- Monthly due
- Following month’s 15th
- Wed–Fri payroll
- Semiweekly deposit next Wednesday
- Sat–Tue payroll
- Semiweekly deposit next Friday
- $100k liability
- Deposit next business day
- Form 941
- Quarterly employment-tax return
- Form 940
- Annual FUTA return
- EFTPS
- Electronic federal tax payment
Forms and Retention
- Form W-4
- Employee federal withholding certificate
- Form I-9
- Employment eligibility verification
- Form W-2
- Annual employee wage statement
- Form W-3
- Transmittal of W-2 totals
- Form 941-X
- Correct prior Form 941
- IRS tax records
- Retain at least four years
- FLSA payroll records
- Retain at least three years
- FLSA computation records
- Retain at least two years
- Escheatment
- Report unclaimed wages under state law
Pay Calculation Order
Gross, bases, taxes, orders, net
GrossTax basesWithholdingDeductionsNet
Regular vs Supplemental Wages
Regular
- Periodic ordinary pay
- Apply W-4 withholding tables
Supplemental
- Bonus, commission, other additions
- Flat method requires conditions
FIT method differs; FICA still applies
Gross-to-Net Decision Route
- Hourly nonexempt work exceeds 40→Compute FLSA overtime(Workweek; applicable state rule)
- Bonus affects regular rate→Recompute overtime premium(Nondiscretionary bonus generally included)
- Benefit has statutory exclusion→Apply correct tax bases(FIT and FICA may differ)
- Pretax election is qualified→Adjust eligible taxable wages(Do not reduce every tax automatically)
- Employee W-4 is available→Apply 2026 Pub 15-T(Choose correct withholding method)
- Supplemental pay is identified→Select permitted withholding method(Check prior regular-wage withholding)
- FICA wages approach annual base→Cap Social Security only(Medicare remains uncapped)
- Employer-paid Medicare wages exceed $200k→Withhold additional 0.9%(No employer matching amount)
- Legal or voluntary deductions apply→Apply priority and limits(Then calculate final net pay)
Federal Taxes
- 2026 Social Security
- 6.2% employee; 6.2% employer
- 2026 SS wage base
- $184,500 per employee
- 2026 Medicare
- 1.45% each; no wage cap
- Additional Medicare
- 0.9% employee-only withholding
- Additional Medicare trigger
- Withhold on wages above $200k
- FUTA base
- First $7k eligible annual wages
- FUTA statutory rate
- 6% employer-only
- FUTA net rate
- 0.6% with full credit
- Federal income tax
- Use 2026 Pub 15-T
FICA vs FUTA
FICA
- Employee and employer shares
- SS cap; Medicare uncapped
FUTA
- Employer-only unemployment tax
- First $7k; credit conditional
Do not withhold FUTA from employees
Deduction and Garnishment Route
- Required tax deductions apply→Subtract from earnings(Then establish disposable earnings)
- Ordinary garnishment applies→Compare both federal ceilings(Use lesser permitted amount)
- Multiple ordinary orders exist→Apply combined federal maximum(Review priority and state law)
- Child support order applies→Use support-specific cap(Check arrears and dependents)
- IRS wage levy applies→Use levy-specific exempt table(Ordinary cap does not apply)
- Voluntary deduction requested→Verify authorization(Check FLSA and state restrictions)
- State cap is stricter→Apply protective state rule(Federal maximum is ceiling)
- Order is unclear→Escalate before withholding(Document interpretation and action)
Gross-to-Net
- Gross pay
- Regular plus taxable additional pay
- FIT wages
- Adjust gross for FIT-exempt items
- FICA wages
- Check separate statutory exclusions
- Pretax deduction
- Apply only to eligible tax bases
- FIT withholding
- Compute using W-4 and tables
- Net pay
- Cash gross less withholding and deductions
- Supplemental flat rate
- 22% when conditions allow
- Over $1m supplemental
- 37% on excess portion
- Aggregate method
- Withhold on combined-period wages
- Noncash fringe
- Taxable value is not cash payable
Gross vs Disposable Earnings
Gross
- Compensation before deductions
- Starts payroll calculation
Disposable
- After legally required deductions
- Basis for garnishment ceiling
Voluntary deductions do not define disposable
Deductions
- Disposable earnings
- After legally required deductions
- Ordinary garnishment
- Lesser of two federal ceilings
- First ceiling
- 25% of disposable earnings
- Second weekly ceiling
- Earnings exceeding 30× federal hourly minimum
- Child support
- Different 50–65% federal limits
- Tax levy
- Apply levy-specific exempt amount
- Voluntary deduction
- Needs valid authorization and law
- Deduction priority
- Check order and state law
- Other pay periods
- Adjust protected earnings exemption accordingly
- Prior garnishment
- Not deducted to establish disposable earnings
Master File
- Master data
- Status, rate, tax, banking
- Effective date
- Controls timing of payroll change
- Input validation
- Reject invalid or missing fields
- Dual approval
- Reduce unauthorized pay changes
- Role-based access
- Limit sensitive payroll permissions
- Change log
- Record who changed what
- Interface control
- Reconcile source and target
- Parallel run
- Compare old versus new outputs
Continuity
- Payroll calendar
- Dates, cutoffs, approvals
- Backup process
- Fallback for system outage
- Recovery objective
- Required restoration time
- Data protection
- Encrypt and restrict access
- Vendor file
- Verify totals and receipt
- Off-cycle payroll
- Controlled exception payment
- Regression test
- Check changes against prior results
Management
- Written policy
- Consistent treatment across cycles
- Service metric
- Measure accuracy and timeliness
- Escalation
- Route unresolved payroll issues
- Training matrix
- Match skills to responsibilities
- Succession cover
- Preserve critical payroll knowledge
- Procedure owner
- Maintain and approve updates
- Privacy
- Limit employee-data exposure
- Nexus review
- Identify multistate obligations
Control Triad
Authorize, record, reconcile
ApprovalAudit trailBank tie-out
Audit Controls
- Segregation
- Separate setup, approval, payment
- Audit trail
- Evidence every material change
- Exception report
- Flag unusual hours or amounts
- Variance test
- Compare to prior period
- Ghost employee
- Detect unsupported payee
- Bank reconciliation
- Match disbursements to bank
- Third-party control
- Review vendor assurance and output
- Correction log
- Track root cause and resolution
Year-End Tie-Out
Ledger, 941, W-2, deposits
General ledgerReturnsStatementsCash
Accounting
- Gross wage expense
- Recognize earned compensation
- Employee withholding
- Credit tax liability
- Employer payroll tax
- Record separate expense
- Net pay liability
- Amount owed to workers
- Tax deposit
- Debit liability; credit cash
- Accrued payroll
- Recognize earned unpaid wages
- Form 941 tie-out
- Reconcile ledger and return
- W-2 tie-out
- Reconcile annual wage totals
- Clearing account
- Investigate uncleared balances
Common Traps
Score denominator
165 scored plus 25 pretest ≠ 300 scaled; not 300 questions
Exam law year
Current outline starts Sep 2026 ≠ Tested federal law: Jan 2026
Overtime basis
Regular rate includes eligible bonus ≠ Base hourly rate may differ
SS and Medicare
Social Security capped at $184,500 ≠ Medicare has no wage base
Additional Medicare
Employer withholds above $200k wages ≠ No employer matching 0.9%
Supplemental withholding
22% flat only when permitted ≠ 37% applies excess over $1m
FUTA credit
0.6% assumes full 5.4% credit ≠ Credit reduction can raise net tax
Deposit frequency
Lookback determines normal schedule ≠ Accumulated $100k overrides schedule
Garnishment base
Disposable follows required deductions ≠ Voluntary deductions do not reduce base
State and federal
Federal rule sets baseline ≠ Stricter state rule may control
Last Minute
- 1.Confirm 2026 seven-domain blueprint weights
- 2.Classify worker under actual common-law control
- 3.Test FLSA exemption and workweek hours
- 4.Include nondiscretionary bonus in regular rate
- 5.Separate FIT, Social Security, Medicare bases
- 6.Cap 2026 Social Security at $184,500
- 7.Withhold additional Medicare above $200k
- 8.Apply supplemental withholding conditions before 22%
- 9.Use lookback and $100k deposit override
- 10.Calculate garnishment from disposable earnings
- 11.Reconcile payroll ledger, deposits, 941, W-2
- 12.Retain FLSA and IRS records correctly
- 13.Verify approvals, interfaces, bank tie-outs
- 14.Escalate multistate nexus and reciprocity
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