CPP CPP Payroll Systems & Processes 2 — Questions and Answers
Question 1: Under the Consumer Credit Protection Act (CCPA), the maximum amount of disposable earnings subject to garnishment for a standard debt is:
- 15% of disposable earnings regardless of income
- 25% of disposable earnings or the amount by which earnings exceed 30 times the federal minimum wage, whichever is less (Correct answer)
- 50% of disposable earnings
- The full amount of disposable earnings above minimum wage
Correct answer: 25% of disposable earnings or the amount by which earnings exceed 30 times the federal minimum wage, whichever is less
The CCPA limits creditor garnishments to 25% of disposable earnings or the amount exceeding 30× the federal minimum wage per week, whichever is smaller.
Question 2: Child support garnishment orders take priority over other types of garnishments because:
- They are always filed before other creditor orders chronologically
- Federal law explicitly grants child support and alimony orders priority over most other garnishments (Correct answer)
- State law requires higher withholding percentages for child support
- Child support is completely exempt from CCPA withholding limits
Correct answer: Federal law explicitly grants child support and alimony orders priority over most other garnishments
Federal law under the CCPA specifically gives child support and alimony withholding orders priority over other creditor garnishments.
Question 3: A Section 125 cafeteria plan allows employees to:
- Receive subsidized meals in the company cafeteria tax-free
- Pay for eligible benefits with pre-tax dollars, reducing their taxable income (Correct answer)
- Contribute to a 401(k) with employer matching
- Access health insurance after age 65 through the employer
Correct answer: Pay for eligible benefits with pre-tax dollars, reducing their taxable income
A Section 125 cafeteria plan lets employees choose and pay for qualifying benefits with pre-tax dollars, lowering their federal income tax, Social Security, and Medicare tax obligations.
Question 4: A traditional 401(k) employee contribution reduces which payroll taxes?
- Federal income tax, Social Security tax, and Medicare tax equally
- Social Security and Medicare taxes only
- Federal income tax withholding only — Social Security and Medicare are still calculated on gross wages (Correct answer)
- State income tax only, not federal taxes
Correct answer: Federal income tax withholding only — Social Security and Medicare are still calculated on gross wages
Traditional 401(k) deferrals reduce federal (and usually state) income tax withholding but remain subject to Social Security and Medicare taxes.
Question 5: An IRS wage levy differs from a creditor garnishment primarily because:
- Levies apply only to tipped employees in the service industry
- A levy is a government seizure to satisfy delinquent taxes and does not require a court order (Correct answer)
- Garnishments allow higher withholding percentages than IRS levies
- Levies require written consent from the employee before withholding begins
Correct answer: A levy is a government seizure to satisfy delinquent taxes and does not require a court order
An IRS levy is a statutory government seizure requiring no court order, while a garnishment is typically a court-ordered creditor remedy.
Question 6: When an employer receives multiple garnishment orders simultaneously, the payroll professional should:
- Apply all orders at their full stated amounts simultaneously
- Honor only the most recently issued order
- Follow federal and state priority rules to determine the order and amounts of each withholding (Correct answer)
- Return all orders to the issuing courts for prioritization instructions
Correct answer: Follow federal and state priority rules to determine the order and amounts of each withholding
Federal and state priority rules govern which garnishments are paid first and how CCPA limits apply across multiple concurrent orders.
CPP CPP Payroll Systems & Processes 2
Under the Consumer Credit Protection Act (CCPA), the maximum amount of disposable earnings subject to garnishment for a standard debt is: