CPP MCQ 5 — Questions and Answers
Question 1: An employee has the following deductions: federal income tax $200, Social Security $93, Medicare $31, state income tax $75, and a Section 125 health premium $150. What is the employee's net pay if gross wages are $1,500?
- $801
- $951 (Correct answer)
- $1,001
- $1,071
Correct answer: $951
Net pay = $1,500 − $200 − $93 − $31 − $75 − $150 = $951.
Question 2: Which of the following correctly describes a 'constructive receipt' of wages?
- Wages physically handed to an employee on payday
- Wages made available to the employee without substantial restriction, even if not yet collected (Correct answer)
- Wages recorded in payroll software but not yet approved
- Wages accrued but subject to forfeiture conditions
Correct answer: Wages made available to the employee without substantial restriction, even if not yet collected
Under the constructive receipt doctrine, income is taxable when it is made available to the taxpayer without substantial restriction, regardless of when actually received.
Question 3: Under the FLSA, which of the following employees is most likely to qualify for the executive exemption from overtime?
- A team lead who earns $35,000 annually and occasionally supervises two employees
- A manager who earns $684/week, directs five full-time employees, and has authority to hire (Correct answer)
- A senior technician who earns $1,200/week but performs no supervisory duties
- An assistant manager who earns $700/week but whose recommendations on hiring are rarely followed
Correct answer: A manager who earns $684/week, directs five full-time employees, and has authority to hire
The executive exemption requires a minimum salary of $684/week, primary duty of managing, directing at least two full-time employees, and authority over hiring/firing decisions.
Question 4: Which payroll concept describes the process of increasing a net pay amount to arrive at the gross pay that results in that exact net after all withholdings?
- Imputed income calculation
- Annualization
- Gross-up calculation (Correct answer)
- Supplemental withholding
Correct answer: Gross-up calculation
A gross-up calculation determines the gross wage needed so that after all taxes and deductions, the employee receives a specific net amount.
Question 5: Under the FLSA, the 'fluctuating workweek' (FWW) method of computing overtime allows an employer to pay an overtime premium of:
- 1.5 times the regular rate for all overtime hours
- 0.5 times the regular rate for all overtime hours (Correct answer)
- A flat dollar amount agreed upon in advance
- Double time for hours over 12 in a day
Correct answer: 0.5 times the regular rate for all overtime hours
Under the FWW method, because the fixed salary compensates for all hours including overtime, only the additional 0.5x premium is owed for overtime hours.
Question 6: Which of the following is a requirement for a Section 125 Cafeteria Plan to maintain its tax-favored status?
- All benefits must be provided in cash
- The plan must pass the non-discrimination tests for eligibility, contributions, and benefits (Correct answer)
- Participants may change elections at any time during the year
- The plan may cover only health insurance premiums
Correct answer: The plan must pass the non-discrimination tests for eligibility, contributions, and benefits
Section 125 plans must pass IRS non-discrimination tests to ensure the plan does not disproportionately benefit highly compensated employees.
Question 7: An employer headquartered in State A has employees working in State B. Which state's income tax should be withheld for those employees?
- State A only, as the employer is headquartered there
- State B only, as that is where the work is performed
- Both states may require withholding depending on reciprocity agreements (Correct answer)
- Neither state; only federal tax applies to multi-state workers
Correct answer: Both states may require withholding depending on reciprocity agreements
Multi-state withholding depends on each state's nexus rules and whether the states have a reciprocity agreement that allows withholding only for the employee's state of residence.
CPP MCQ 5
An employee has the following deductions: federal income tax $200, Social Security $93, Medicare $31, state income tax $75, and a Section 125 health premium $150.
What is the employee's net pay if gross wages are $1,500?