In this week's edition, we'll answer last week's question with more details, ask our current week's question about the dreaded Box 12 codes on Form W-2, and share some CPP feedback and information from American Payroll Association Board of Director James Paille. The Certified Payroll Professional Corner.
The Spring 2022 Certified Payroll Professional (CPP) exam testing period ended a few weeks ago on April 16, 2022. Hopefully, there are many CPPs out there!
Next testing period
The next testing period for the CPP begins on September 10, 2022, with registration for it opening on July 6, 2022. This Summer/Fall testing period will be based on federal laws and regulations in effect as of January 1, 2022. But, any mid-year regulatory changes will not be included in the exam.
Thoughts and tips from a payroll pro
Recently, the Checkpoint payroll editorial team had the pleasure to ask American Payroll Association (APA) Board of Directors member James Paille, CPP, some questions about the exam. Mr. Paille is the Compliance Director and kindly offered some tips for those interested in taking the CPP.
Tips for taking the exam. On taking the exam, Mr. Paillie says to: “Make sure you give yourself enough time to prepare and study. Many successful CPP candidates study for three to six months or more for the CPP exam.” The CPP exam is 190 questions. Those who sit for the test have to finish it in four hours.
Regarding test day, Mr. Paille says to: “Remember to get a good night’s sleep the night before [the exam].” He adds that, “You need a general knowledge of all payroll functions.” The CPP only covers federal payroll information – payroll laws, U.S. Department of Labor regulations, record retention, federal payroll tax forms, payroll systems, and accounting.
CPP for professional growth. On obtaining the CPP for professional growth, Mr. Paillie says that, “The CPP designation is more than beneficial for professional growth, it’s essential.” He notes that, “[the CPP] is becoming a necessity for moving up in the corporate structure.”
Reflections on the exam. Mr. Paillie said that he took the exam a number of years ago. “Remember number two pencils?” He joked. It took a couple weeks for exam takers to get the results back then. Now, the exam results are much faster. Mr. Paillie also suggests planning “a celebration party after the test!” It’s a big accomplishment, so why not take a moment to pat yourself on the back.
On the radar for this year’s exam. Mr. Paillie says to keep the “many federal changes and credits” in mind if you are taking the CPP this year. He also says to “know how to calculate payroll manually from start to finish.”
Last week, the CPP exam question had to do with statutory employees and the correct answer was “a” (a full-time life insurance agent). Basically, a statutory employee is one who is specifically defined as an employee by statute. This means that workers in certain occupations may be employees for Federal Insurance Contributions Act (FICA) tax and Federal Unemployment Tax Act (FUTA) tax purposes even if they qualify as independent contractors under the IRS’s common law rules.
To be categorized as a statutory employee, a worker must fall within one of the following four categories:
- A driver who distributes beverages (other than milk) or meat, vegetable, fruit, or bakery products; or who picks up and delivers laundry or dry cleaning, if the driver is your agent or is paid on commission.
- A full-time life insurance sales agent whose principal business activity is selling life insurance or annuity contracts, or both, primarily for one life insurance company.
- An individual who works at home on materials or goods that you supply and that must be returned to you or to a person you name, if you also furnish specifications for the work to be done.
- A full-time traveling or city salesperson who works on your behalf and turns in orders to you from wholesalers, retailers, contractors, or operators of hotels, restaurants, or other similar establishments. The goods sold must be merchandise for resale or supplies for use in the buyer’s business operation. The work performed for you must be the salesperson’s principal business activity.
A statutory employee must also meet the following three conditions under Social Security and Medicare taxes:
- The service contract states or implies that substantially all the services are to be performed personally by them.
- They do not have a substantial investment in the equipment and property used to perform the services (other than an investment in transportation facilities).
- The services are performed on a continuing basis for the same payer.
Federal income tax withholding. Employers should not withhold federal income tax from the wages of a statutory employee.
Form W-2. Statutory employees should receive a Form W-2 (Wage and Tax Statement). The employer should check “statutory employee” in box 13 and show the payments to the employee as “other compensation” in box 1. This should not be done for H-2A agricultural workers since they are not statutory employees.
This week’s CPP exam question.
Every employer engaged in a trade or business who pays remuneration, including noncash payments of $600 or more for the year (all amounts if any income, Social Security, or Medicare tax was withheld) for services performed by an employee must file a Form W-2 for each employee (even if the employee is related to the employer) from whom:
- Income, Social Security, or Medicare tax was withheld.
- Income tax would have been withheld if the employee had claimed no more than one withholding allowance or had not claimed exemption from withholding on Form W-4 (Employee’s Withholding Allowance Certificate).
There are a number of boxes on Form W-2. Box 12 contains a number of codes that may be entered to describe certain items to be reported. The instructions for Form W-2 include a reference guide for box 12 codes. These codes are labeled A through Z and AA through HH. For example, box 12 code A is for reporting the uncollected Social Security or Railroad Retirement Tax Act (RRTA) tax on tips.
The CPP exam may include questions about Form W-2 box 12 codes. It is important for exam takers to familiarize themselves with the reference guide for these codes.
Week #2 question. What is the correct code to use on box 12 of Form W-2 for reporting employer contributions (including employee contributions through a cafeteria plan) to an employee’s health savings account (HSA)?
- Code F
- Code Q
- Code W
- Code DD
Good luck! We’ll have the answer next week with more information and the following week’s CPP exam question.
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