CPM Payroll Processing and Administration 3 — Questions and Answers
Question 1: Under FLSA, which of the following workers is correctly classified as exempt from overtime requirements?
- A customer service rep earning $35,000 annually with no management duties
- A salaried store manager earning $700/week who directs two or more employees and has hiring authority (Correct answer)
- An hourly technician earning $25/hour
- A part-time receptionist earning $15/hour
Correct answer: A salaried store manager earning $700/week who directs two or more employees and has hiring authority
The executive exemption requires a salary of at least $684/week, primary duty of management, and authority over at least two employees.
Question 2: A garnishment order requires withholding $300 per week, but the employee's disposable earnings are only $350. Under CCPA, what is the maximum that can be withheld?
- $300 as ordered by the court
- $87.50 (25% of $350) (Correct answer)
- $262.50 (75% of $350)
- $175.00 (50% of $350)
Correct answer: $87.50 (25% of $350)
CCPA limits garnishment to the lesser of 25% of disposable earnings or the amount by which disposable earnings exceed 30 times the federal minimum wage.
Question 3: Which payroll tax deposit rule applies when a company's accumulated tax liability reaches $100,000 on any day during a deposit period?
- Deposit by the 15th of the following month
- Deposit by the next business day (Correct answer)
- Deposit within three banking days
- Deposit with the next quarterly Form 941
Correct answer: Deposit by the next business day
The $100,000 next-day deposit rule requires immediate deposit by the next business day once cumulative liability reaches $100,000.
Question 4: An employer provides group-term life insurance coverage of $75,000 to an employee. What amount is subject to income and FICA taxes?
- The full $75,000 coverage
- The cost of coverage over $50,000 (Correct answer)
- The cost of the first $50,000 only
- The entire premium paid by the employer
Correct answer: The cost of coverage over $50,000
The imputed income taxable to the employee is the employer-provided cost of group-term life insurance coverage exceeding $50,000.
Question 5: What is the correct treatment for backup withholding on payments subject to Form 1099 reporting when a payee fails to provide a valid TIN?
- Withhold at the employee's supplemental rate of 22%
- Withhold at the backup withholding rate of 24% (Correct answer)
- Withhold at 28% until the TIN is supplied
- No withholding is required for 1099 payments
Correct answer: Withhold at the backup withholding rate of 24%
Backup withholding is required at a flat 24% rate when a payee fails to provide a valid taxpayer identification number.
Question 6: A payroll manager discovers that an employee was overpaid $800 in a prior year. What is the correct procedure for correcting the over-withholding?
- File an amended W-2c for the prior year and collect the overpayment from the employee
- Recover the net pay from the employee and adjust current-year W-2
- Issue a corrected W-2c and file Form 941-X to claim a refund of over-withheld FICA (Correct answer)
- Report the overpayment as additional income on the current year's W-2
Correct answer: Issue a corrected W-2c and file Form 941-X to claim a refund of over-withheld FICA
Prior-year payroll errors require filing a W-2c to correct the employee's wage statement and a Form 941-X to adjust or claim refund of over-withheld employment taxes.
Question 7: Under IRS regulations, what is the maximum contribution limit for a Health Flexible Spending Account (Health FSA) employee salary reduction in 2024?
- $2,500
- $3,050
- $3,200 (Correct answer)
- $5,000
Correct answer: $3,200
For 2024, the IRS health FSA salary reduction contribution limit is $3,200 per employee.
CPM Payroll Processing and Administration 3
Under FLSA, which of the following workers is correctly classified as exempt from overtime requirements?