APA Benefits and Compensation 3 — Questions and Answers
Question 1: An employer provides an employee with a company car for both business and personal use. How is the personal use portion treated for payroll purposes?
- Excluded from wages as a working condition fringe benefit
- Included in wages as a taxable fringe benefit (Correct answer)
- Excluded from wages up to $5,250 annually
- Included only in FICA wages, not federal income tax wages
Correct answer: Included in wages as a taxable fringe benefit
The fair market value of personal use of a company vehicle is includible in the employee's gross wages and subject to income tax and FICA withholding.
Question 2: Which of the following correctly describes the taxation of employer contributions to a qualified 401(k) plan?
- Included in FICA wages but excluded from federal income tax wages
- Excluded from both FICA and federal income tax wages when contributed (Correct answer)
- Included in both FICA and federal income tax wages
- Excluded from FICA only when contributions exceed the annual limit
Correct answer: Excluded from both FICA and federal income tax wages when contributed
Employer matching or profit-sharing contributions to a qualified 401(k) plan are excluded from the employee's FICA and federal income tax wages at the time of contribution.
Question 3: What is the Section 415 annual additions limit for defined contribution plans in 2024?
- $23,000
- $46,000
- $69,000 (Correct answer)
- $76,500
Correct answer: $69,000
The Section 415 limit on annual additions to defined contribution plans for 2024 is $69,000 (or 100% of compensation, if less).
Question 4: An employee who is also a 5% owner of the company participates in the company's 401(k) plan. Under the required minimum distribution rules, when must distributions begin?
- April 1 of the year following the year the employee turns 73 (Correct answer)
- April 1 of the year following the year the employee retires
- December 31 of the year the employee turns 73
- April 1 of the year following the later of turning 73 or retiring
Correct answer: April 1 of the year following the year the employee turns 73
For 5% owners, RMDs must begin by April 1 following the year they reach age 73, regardless of whether they are still employed.
Question 5: Under IRC Section 129, what is the annual maximum amount that can be excluded from an employee's income for employer-provided dependent care assistance?
- $3,000 for one dependent; $6,000 for two or more
- $5,000 ($2,500 if married filing separately) (Correct answer)
- $10,500 (expanded COVID limit made permanent)
- $7,500 for family coverage
Correct answer: $5,000 ($2,500 if married filing separately)
The annual exclusion for employer-provided dependent care assistance under Section 129 is $5,000 ($2,500 for married filing separately).
Question 6: A company provides free parking to employees in a lot that costs $300 per month per spot. How is this benefit treated for tax purposes in 2024?
- Fully taxable as the value exceeds the monthly exclusion
- Excludable up to $315 per month; excess is taxable (Correct answer)
- Fully excludable as a working condition fringe benefit
- Taxable only for employees earning over $100,000
Correct answer: Excludable up to $315 per month; excess is taxable
The qualified parking exclusion for 2024 is $315 per month; amounts exceeding this limit must be included in the employee's taxable wages.
Question 7: Which plan document must a qualified retirement plan have to describe the plan's terms and conditions, including eligibility, vesting, and benefit formulas?
- Summary Annual Report (SAR)
- Summary Plan Description (SPD) (Correct answer)
- Form 5500
- Plan adoption agreement only
Correct answer: Summary Plan Description (SPD)
The Summary Plan Description (SPD) is the primary document that communicates the plan's terms to participants and must be provided within 90 days of becoming a participant.
APA Benefits and Compensation 3
An employer provides an employee with a company car for both business and personal use.
How is the personal use portion treated for payroll purposes?