CPP CPP Advanced Practice 2 — Questions and Answers
Question 1: An employee receives a $5,000 signing bonus that must be repaid if they leave within 12 months. How should this bonus be treated for payroll tax purposes when paid?
- Exempt from FICA until the repayment condition is met
- Subject to FICA and federal income tax withholding when paid (Correct answer)
- Deferred until the 12-month condition is satisfied
- Treated as a loan and excluded from gross wages
Correct answer: Subject to FICA and federal income tax withholding when paid
Signing bonuses are taxable wages subject to FICA and federal income tax withholding in the pay period they are paid, regardless of repayment conditions.
Question 2: Which method must employers use to deposit federal payroll taxes if their total tax liability exceeded $50,000 in the prior lookback period?
- Monthly deposit schedule
- Semi-weekly deposit schedule (Correct answer)
- Next-day deposit schedule
- Quarterly deposit schedule
Correct answer: Semi-weekly deposit schedule
Employers with more than $50,000 in tax liability during the lookback period are classified as semi-weekly depositors.
Question 3: Under the FLSA, what is the maximum tip credit an employer may claim against the federal minimum wage for tipped employees?
- $2.13 per hour (Correct answer)
- $3.02 per hour
- $4.25 per hour
- $5.12 per hour
Correct answer: $2.13 per hour
The federal maximum tip credit is $2.13 per hour, meaning tipped employees must receive at least $2.13 in direct wages.
Question 4: A nonresident alien employee on an F-1 visa has been in the US for 4 years. Which FICA treatment applies?
- Exempt from both Social Security and Medicare taxes
- Subject to Social Security only
- Subject to Medicare only
- Subject to both Social Security and Medicare taxes (Correct answer)
Correct answer: Subject to both Social Security and Medicare taxes
F-1 visa holders are exempt from FICA only during their first 5 calendar years; after that period they become subject to both taxes.
Question 5: An employer pays an employee's $1,200 personal cell phone bill as a taxable fringe benefit. What is the proper payroll treatment?
- Exclude from wages as a de minimis fringe benefit
- Include in wages; withhold FIT but not FICA
- Include in wages and withhold both FIT and FICA (Correct answer)
- Report on Form 1099-MISC instead of Form W-2
Correct answer: Include in wages and withhold both FIT and FICA
Employer-paid personal cell phone expenses that are not for business use are taxable wages subject to FIT withholding and FICA taxes.
Question 6: Under IRC §409A, when must a nonqualified deferred compensation plan distribute benefits to a 'specified employee' following separation from service?
- Immediately upon separation
- Within 30 days of separation
- No earlier than 6 months after separation (Correct answer)
- No earlier than 12 months after separation
Correct answer: No earlier than 6 months after separation
IRC §409A requires a mandatory 6-month delay for distributions to specified employees (key employees of publicly traded companies) after separation from service.
Question 7: What is the IRS-approved method for withholding federal income tax on a $2,500 supplemental wage payment when the employee's regular wages are paid separately?
- Add to the next regular paycheck and use wage bracket method
- Apply the 22% flat rate withholding (Correct answer)
- Withhold at the employee's marginal rate from their most recent W-4
- No withholding required on amounts under $3,000
Correct answer: Apply the 22% flat rate withholding
Supplemental wages paid separately from regular wages may be withheld at the optional flat rate of 22% (for amounts under $1 million).
CPP CPP Advanced Practice 2
An employee receives a $5,000 signing bonus that must be repaid if they leave within 12 months.
How should this bonus be treated for payroll tax purposes when paid?