CPP Certified Payroll Professional 5 — Questions and Answers
Question 1: Which of the following correctly describes a 'constructive receipt' of wages?
- Wages are taxable only when physically received by the employee
- Wages are taxable when made available to the employee without restriction, even if not yet received (Correct answer)
- Wages are always taxable in the year they are earned regardless of payment date
- Wages are taxable only when deposited into a bank account
Correct answer: Wages are taxable when made available to the employee without restriction, even if not yet received
Under the doctrine of constructive receipt, income is taxable when it is credited to an employee's account or made available without substantial restrictions.
Question 2: An employer provides a company car for both business and personal use. How should the personal use portion be treated for payroll purposes?
- It is excluded from income as a de minimis fringe benefit
- It is imputed as taxable income subject to federal income tax and FICA (Correct answer)
- It is always exempt from FICA but taxable for income tax purposes only
- It is reported only on the employee's personal tax return
Correct answer: It is imputed as taxable income subject to federal income tax and FICA
The fair market value of personal use of a company vehicle is imputed income — it is added to taxable wages and subject to both federal income tax withholding and FICA.
Question 3: What is a Household Employer's threshold for FICA tax obligations in 2024?
- $1,000 in cash wages paid to any household employee during the year
- $2,700 in cash wages paid to any household employee during the year (Correct answer)
- $5,000 in wages to all household employees combined
- $600 in wages to any household employee
Correct answer: $2,700 in cash wages paid to any household employee during the year
For 2024, household employers must withhold and pay FICA taxes if they pay any single household employee $2,700 or more in cash wages during the calendar year.
Question 4: Under the FLSA, which test is primarily used to determine if an individual is an employee or an independent contractor?
- The ABC test
- The economic reality test (Correct answer)
- The common law control test
- The IRS 20-factor test
Correct answer: The economic reality test
The FLSA uses the 'economic reality test,' which examines whether the worker is economically dependent on the employer or is truly in business for themselves.
Question 5: If a semiweekly depositor accumulates a tax liability of $100,000 or more on any day, when must the deposit be made?
- By the next Friday
- By the next business day (Correct answer)
- Within 3 banking days
- By the 15th of the following month
Correct answer: By the next business day
The next-day deposit rule requires that if a deposit obligation reaches $100,000 on any day, the deposit must be made by the next banking day.
Question 6: Which of the following is an example of an excluded fringe benefit that is NOT subject to federal income tax or FICA?
- Personal use of a company vehicle valued at $1,200
- Employer-paid group-term life insurance up to $50,000 (Correct answer)
- A $600 gift card given as a holiday bonus
- Taxable moving expense reimbursements
Correct answer: Employer-paid group-term life insurance up to $50,000
Employer-provided group-term life insurance coverage up to $50,000 is excluded from an employee's gross income under IRC Section 79.
Question 7: A payroll professional discovers that Social Security taxes were under-withheld for an employee due to a system error discovered in the same quarter. What is the proper correction procedure?
- File Form 941-X for the quarter and pay any underpayment with interest
- Collect the under-withheld amount from the employee and report it on the current quarter's Form 941 (Correct answer)
- Ignore the error if it is under $100
- Issue a corrected W-2 at year-end with no other action needed
Correct answer: Collect the under-withheld amount from the employee and report it on the current quarter's Form 941
When an under-withholding error is discovered in the same calendar year, the employer may collect the employee's share and correct it on the current quarter's Form 941 without filing Form 941-X.
CPP Certified Payroll Professional 5
Which of the following correctly describes a 'constructive receipt' of wages?