Free FPC Fundamental Payroll Certification Practice Test
1. In determining legal obligations with respect to workplace discrimination, an individual would be considered an employee of both the staffing agency and the agency's client to which he's assigned when...
a. the employee works at the agency's job site
b. the agency controls the employee's working conditions
c. the staffing agency is a temporary employment agency
d. the agency and the client are controlled by the same parent company
2. When supplemental wages are paid at the same time as regular wages, how are withholding taxes computed?
a. Withholding on supplemental wages is taxed separately
b. Withholding taxes are based on the total of the wages and supplemental wages
c. Supplemental wages are not subject to withholding taxes
d. Supplemental wages are taxed at a different withholding rate
3. What is the effect on an employee's income when the employer pays that employee's share of Social Security and Medicare taxes on a fringe benefit?
a. There is no change
b. The taxes paid by the employer are considered income to the employee
c. The amount of the fringe benefit is included in the employee's income
d. There are no Social Security or Medicare taxes on fringe benefits
4. What is the valuation method used to determine the value of a fringe benefit that an employer provides to an employee?
a. Actual market value
b. Actual cash value
c. Implied benefit value
d. General valuation rule
5. According to Internal Revenue Code Section 132, which of the following types of fringe benefits are excluded from gross income?
a. Qualified retirement plan contributions
b. Group term life insurance benefits
c. Accident insurance coverage paid by the employer
d. Qualified retirement planning services
Answers and Explanations
1. C. The staffing agency is a temporary employment agency. There are many types of contingent work arrangements that may be made between a company, an agency and an individual. In most instances, the individual would be considered an independent contractor. In temporary employment agencies, the individual is actually considered an employee of the agency. In this scenario, the individual is hired and paid by the agency and the working conditions are controlled by the company (the agency's client). The agency pays the individual and collects a fee from the client company. The individual is considered an employee of both the agency and the company because both entities control the individual job performance. The agency hires, assigns jobs, pays workers' compensation and pays employee wages. The company supervises the individual and provides work space and equipment.
2. B: Withholding taxes are based on the total of the wages and supplemental wages. When supplemental wages are paid together with regular wages in one lump sum, taxes are withheld on the total amount as if it were a single wage payment. If the supplemental wages are indicated separately, 25% of the supplemental wages can be withheld. If the supplemental wages are made separately from regular payroll, the supplemental wages are treated as a regular wage payment and taxes withheld as if the payment is a regular wage payment. Supplemental wages include bonuses, commissions, overtime pay, sick leave, severance pay, back pay and payments for moving expenses.
3. C: The amount of the fringe benefit is included in the employee's income. When an employer pays the Social Security and Medicare taxes on the taxable amount of a fringe benefit, the amount of the fringe benefit must be included in the employee's income. If an employee terminates employment and the employer has unpaid and uncollected taxes for these benefits, the employer is liable for these taxes.
4. D: General valuation rule. For Internal Revenue Service (IRS) purposes, the general valuation rule is used to determine a value for a fringe benefit. The general value of a fringe benefit is its fair market value, or the amount the employee would have to pay for the benefit from a third party. Fair market value does not take the employee's perceived value or the actual cost to the employer into consideration.
5. D: Qualified retirement planning services. Section 132 of the Internal Revenue Code lists eight types of fringe benefits that are excluded from an employee's gross income. These exclusions include:
- No-additional-cost services that are also offered to customers, provided to employees with no additional costs incurred
- Qualified employee discounts as long as the discount does not exceed the gross profit percentage on property or 20% of the price of the service
- Working condition fringe where the payment is allowed as a deduction under Section 162 or 167
- De Minimis fringe benefits, such as occasional snacks, where the infrequency and small value make accounting for them impractical or unreasonable
- Qualified transportation fringe for transportation between the employee's residence and the work location
- Qualified moving expense reimbursement for expenses deductible under Section 217
- Qualified retirement planning services to maintain a qualified employer plan
- Qualified military base realignment and closure fringe
Last Updated: 03/01/2017