Free Certified Payroll Professional Practice Test
1. Which of the following must be defined before overtime calculations can be made?
a. The rate of pay
b. The workweek
c. The company's overtime policy
d. The overtime contract with the employee
2. Which statement about imputed income is NOT true?
a. Imputed income is subject to federal income tax withholding rules
b. Imputed income is subject to withholding for FICA tax purposes
c. Using an employer-provided asset for personal use can be classified as imputed income
d. The employee's W-2 must include imputed income
3. Which of the following federal taxes is not withheld from an employee's wages after the employee's death?
a. Social Security
d. Federal Income Tax Withholding
4. Under the Consumer Credit Protection Act of 1977, what percentage of an employee's disposable earnings can be deducted if the employee supports two families and is 12 or more weeks in arrears on child support?
5. What characteristic makes a cafeteria plan different from other types of benefit plans?
a. Cafeteria plans offer accident benefits
b. The employee has a choice of only nontaxable benefits
c. The employee has a choice between taxable and nontaxable benefits
d. Cafeteria plans offer only health benefits
Answers and Explanations
1. B: The workweek. The workweek is defined as seven consecutive 24-hour periods. The only requirement of a workweek is that the day of the week that the workweek starts stays the same and that the workweek is a fixed and regularly-occurring period of 168 hours. Under the FLSA, non-exempt employees are entitled to receive overtime pay for any hours worked over 40 hours in any one workweek. It is at the employer's discretion when to start the workweek and the workweek can vary among different employees of the same employer. Once the workweek that applies to overtime calculations is defined, then the hours worked by the employee can be determined.
2. A: Imputed income is subject to federal income tax withholding rules. Imputed income is the addition of the value of cash or non-cash compensation to an employee's taxable wages, Employer-paid tuition reimbursement and other fringe benefits fall under the category of imputed income, as would the personal use of a company-provided vehicle. Other common examples include:
- Group term taxable life insurance coverage over $50,000
- Dependent-care assistance exceeding the tax-free amount
- Non-deductible relocation expenses reimbursement
Imputed income is included in the employee's Form W-2, but not subject to federal income tax withholding rules. It is, however, subject to FICA withholding. Employees have the option of having federal income tax withheld on the imputed income or pay the tax due when filing their income tax returns.
3. D: Federal Income Tax Withholding. Following the death of an employee, it is the employer's responsibility to determine wages owed to the employee's estate and to deduct the appropriate taxes. Amounts due to the employee may include current wages, accrued vacation and bonuses. Deductions are made for Social Security, Medicare and FUTA because the employee had earned income that should be credited toward those benefits. Federal Income tax is not withheld because the income is taxable against the employee's estate or beneficiary.
4. B: 55%. Under the Consumer Credit Protection Act (CCPA), the amount that can be withheld from an employee's wages is limited depending on certain criteria:
- If the employee supports a second family and is less than 12 weeks in arrears on child support, 50% of disposable wages can be used to pay the current child support
- If the employee supports a second family and is 12 weeks or more in arrears on child support, 55% of disposable wages can be used to pay the current child support
- If the employee does not support a second family and is less than 12 weeks in arrears on child support, 60% of disposable wages can be used to pay the current child support
- If the employee does not support a second family and is 12 or more weeks in arrears on child support, 65% of disposable wages can be used to pay the current child support
Disposable earnings are an employee's gross earnings less deductions for withholding for income taxes, Social Security, Medicare and unemployment taxes.
5. C: The employee has a choice between taxable and nontaxable benefits. Cafeteria plans fall under section 125 of the Internal Revenue Code. Cafeteria plans give employers the option to offer employees certain benefits on a pre-tax basis. In a cafeteria plan, employees can choose from at least one taxable benefit and one qualified benefit. Qualified benefits do not defer compensation and are excluded from the employee's gross income. Some examples of qualified benefits are:
- Accident and health benefits
- Health savings accounts
- Group term life insurance
- Dependent care assistance
- Adoption assistance
Last Updated: 11/21/2017