CPP CPP Advanced Practice 4 — Questions and Answers
Question 1: Under IRS rules, what is the annual exclusion limit for employer-provided dependent care assistance through a DCAP/FSA in 2024?
- $2,500 per employee
- $5,000 per household ($2,500 if married filing separately) (Correct answer)
- $7,500 per household
- $10,500 per household
Correct answer: $5,000 per household ($2,500 if married filing separately)
The dependent care FSA exclusion is $5,000 per household annually ($2,500 for married filing separately), and amounts above this limit are taxable wages.
Question 2: Which of the following correctly describes the 'special accounting rule' for fringe benefits?
- Fringe benefits may be reported on a cash basis regardless of when received
- Employers may treat fringe benefits provided in November–December as paid in the following January (Correct answer)
- Fringe benefits must always be reported in the calendar year they are provided
- Fringe benefits provided to officers must be reported quarterly
Correct answer: Employers may treat fringe benefits provided in November–December as paid in the following January
The IRS special accounting rule allows employers to treat fringe benefits provided during the last 2 months of the year as paid in January of the following year for reporting purposes.
Question 3: An employee is paid biweekly and claims exempt on their W-4. In February, the employer discovers the employee earned $50,000 last year and owed $800 in taxes. What should the employer do?
- Continue honoring the exempt claim for the full calendar year
- Immediately begin withholding at the single rate with zero allowances
- Notify the IRS and request a lock-in letter before withholding
- Begin withholding based on Single-0 status starting with the next paycheck (Correct answer)
Correct answer: Begin withholding based on Single-0 status starting with the next paycheck
If an employer has reason to believe an exempt claim is invalid (employee owed taxes and earned above a threshold), the employer should withhold as if the employee is single with no adjustments.
Question 4: What triggers the Additional Medicare Tax of 0.9% for an employee, and who is responsible for withholding it?
- Wages over $200,000; employer withholds once cumulative wages exceed that threshold (Correct answer)
- Wages over $125,000 for single filers; employer withholds from the first dollar
- Combined household income over $250,000; employee reports on their tax return only
- Investment income over $200,000; employer withholds on all supplemental wages
Correct answer: Wages over $200,000; employer withholds once cumulative wages exceed that threshold
Employers must withhold the 0.9% Additional Medicare Tax on wages paid to an employee once their wages from that employer exceed $200,000 in a calendar year.
Question 5: An employee receives a company car with an annual lease value of $9,600 and uses it 70% for business. What is the taxable fringe benefit amount using the annual lease value method?
- $2,880 (Correct answer)
- $3,840
- $6,720
- $9,600
Correct answer: $2,880
Only personal use (30%) is taxable: $9,600 × 30% = $2,880, which must be included in the employee's wages.
Question 6: Which payroll concept determines whether a worker is an employee or independent contractor for FICA purposes under the common law test?
- The worker's preference for treatment
- The degree of behavioral and financial control the hiring firm exercises (Correct answer)
- The amount paid to the worker annually
- Whether the worker receives a W-2 from any other employer
Correct answer: The degree of behavioral and financial control the hiring firm exercises
The IRS common law test focuses on behavioral control, financial control, and the type of relationship to determine worker classification for tax purposes.
Question 7: A Section 125 cafeteria plan allows employees to pay for group health insurance premiums on a pre-tax basis. Which tax is NOT reduced by employee contributions made through the plan?
- Federal income tax
- Social Security tax
- Medicare tax
- FUTA tax (Correct answer)
Correct answer: FUTA tax
FUTA (Federal Unemployment Tax Act) is an employer-only tax and is not directly affected by Section 125 salary reductions, though FUTA wages are reduced since Section 125 amounts are excluded from FUTA wages.
CPP CPP Advanced Practice 4
Under IRS rules, what is the annual exclusion limit for employer-provided dependent care assistance through a DCAP/FSA in 2024?