CAT Payroll Processing & Administration 3 — Questions and Answers
Question 1: Which of the following fringe benefits is generally excluded from an employee's gross income for federal tax purposes?
- Cash bonuses
- Employer-paid health insurance premiums (Correct answer)
- Personal use of a company car
- Gift cards worth $50
Correct answer: Employer-paid health insurance premiums
Employer-paid health insurance premiums are excluded from employees' gross income under Section 106 of the Internal Revenue Code.
Question 2: What document must employers provide to employees by January 31 each year summarizing annual wages and taxes withheld?
- Form 1099-NEC
- Form W-3
- Form W-2 (Correct answer)
- Form 941
Correct answer: Form W-2
Employers must furnish Form W-2 (Wage and Tax Statement) to each employee by January 31 of the following year.
Question 3: An employee enrolls in a Section 125 cafeteria plan. How does this affect their federal income tax withholding?
- It increases taxable wages
- It has no effect on taxable wages
- It reduces taxable wages by the pre-tax contribution amount (Correct answer)
- It eliminates FICA taxes entirely
Correct answer: It reduces taxable wages by the pre-tax contribution amount
Section 125 cafeteria plan contributions are made pre-tax, reducing the employee's taxable wages for federal income tax withholding purposes.
Question 4: Which form is used by employers to transmit Copy A of all Forms W-2 to the Social Security Administration?
- Form 940
- Form W-3 (Correct answer)
- Form 941
- Form 1096
Correct answer: Form W-3
Form W-3 (Transmittal of Wage and Tax Statements) is the cover sheet submitted with Copy A of all W-2 forms to the SSA.
Question 5: Under the FLSA, which category of workers is generally exempt from overtime pay requirements?
- Part-time hourly workers
- Seasonal agricultural employees
- Executive, administrative, and professional employees meeting salary thresholds (Correct answer)
- Workers under age 18
Correct answer: Executive, administrative, and professional employees meeting salary thresholds
The FLSA's white-collar exemptions apply to executive, administrative, and professional employees who meet specific salary and duties tests.
Question 6: An employer's payroll register shows gross wages of $50,000. Employee FICA withholdings total $3,825. What amount does the employer owe in matching FICA taxes?
- $1,912.50
- $3,825.00 (Correct answer)
- $7,650.00
- $6,200.00
Correct answer: $3,825.00
Employers match employee FICA contributions dollar-for-dollar, so the employer owes $3,825 in matching FICA taxes.
Question 7: What is the purpose of the payroll lookback period for determining deposit frequency?
- To calculate annual vacation accruals
- To determine whether an employer is a monthly or semi-weekly depositor (Correct answer)
- To set the FUTA tax rate
- To establish the wage base for Medicare
Correct answer: To determine whether an employer is a monthly or semi-weekly depositor
The lookback period (a 12-month period ending June 30 of the prior year) is used to determine whether an employer must deposit payroll taxes monthly or semi-weekly.
CAT Payroll Processing & Administration 3
Which of the following fringe benefits is generally excluded from an employee's gross income for federal tax purposes?