APA Benefits and Compensation 5

Question 1

What is the penalty for an employer's failure to deposit federal payroll taxes on time under the trust fund rules?

Accepted Answer

A tiered penalty from 2% to 15% depending on how late the deposit is

Answer

The failure-to-deposit penalty is tiered: 2% (1-5 days late), 5% (6-15 days late), 10% (16+ days or received after IRS notice), and 15% (10+ days after first IRS notice demanding immediate payment).

Question 2

Under ERISA's vesting requirements for employer matching contributions in a 401(k) plan, what is the maximum cliff vesting schedule allowed?

Accepted Answer

3 years

Answer

ERISA allows a maximum cliff vesting schedule of 3 years for employer matching contributions, meaning employees must be 100% vested after 3 years of service.

Question 3

An employee elects to receive $2,000 of vacation pay in cash instead of taking time off. The employer offers this cash-out option through a cafeteria plan. How is this treated?

Accepted Answer

Taxable because unused vacation paid in cash is includible in gross income

Answer

Vacation pay cashed out by an employee is includible in gross income and subject to all applicable payroll taxes regardless of the cafeteria plan wrapper.

Question 4

For purposes of the FMLA, how many hours of service must an employee have worked in the prior 12 months to be eligible for leave?

Accepted Answer

1,250 hours

Answer

To be FMLA-eligible, an employee must have worked at least 1,250 hours during the 12-month period immediately before the leave begins.

Question 5

When an employee exercises an Incentive Stock Option (ISO) and holds the stock for the required qualifying period, what tax treatment applies?

Accepted Answer

No regular income tax at exercise; gain at sale is taxed as long-term capital gain

Answer

ISOs receive favorable tax treatment: no regular income tax at exercise (though AMT may apply), and if holding period requirements are met, gain at sale is long-term capital gain.

(APA) American Payroll Association Certification Practice Test

(APA) American Payroll Association Certification Practice Test

APA Benefits and Compensation 5