Client Advisory Services Flashcards
7 cards from real CPS practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Client Advisory Services flashcards as text
A client hires a worker and classifies them as an independent contractor. Under the IRS common law test, which factor most strongly indicates employee status?
Answer: The client controls both what work is done and how it is done
Behavioral control—specifically the right to direct and control how work is performed—is the strongest indicator of employee status under the IRS common law test.
A client asks about the penalty for failing to deposit payroll taxes on time. What is the penalty rate for a deposit that is 1–5 days late?
Answer: 2%
The IRS FTD penalty for deposits 1–5 days late is 2% of the undeposited tax amount.
When advising a client about Section 125 Cafeteria Plans, which of the following benefits cannot be offered through a Cafeteria Plan?
Answer: Scholarships and educational assistance exceeding $5,250
Scholarships are not a qualified benefit under IRC Section 125; educational assistance exceeding $5,250 is taxable and cannot be offered tax-free through a cafeteria plan.
A client's employee receives a $10,000 relocation reimbursement. How should this be treated on payroll after the Tax Cuts and Jobs Act of 2017?
Answer: Included in the employee's taxable wages and subject to withholding
The TCJA suspended the exclusion for qualified moving expense reimbursements (except for certain military personnel) through 2025, making all employer relocation reimbursements taxable.
A client wants to know how long they must retain payroll records under federal law. What is the minimum retention period required by the Fair Labor Standards Act?
Answer: 3 years
The FLSA requires employers to retain most payroll records, including time cards and wage rate tables, for at least 3 years.
An employer client provides employees with company cars for personal use. How is the value of the personal use determined for tax purposes?
Answer: It is calculated using the IRS Annual Lease Value or Cents-Per-Mile method and included in wages
Personal use of a company vehicle is a taxable fringe benefit valued using IRS-approved methods such as the Annual Lease Value or Cents-Per-Mile rule and added to W-2 wages.
A client's employee elects to contribute the maximum to their 401(k) plan. For 2024, what is the employee elective deferral limit?
Answer: $23,000
The IRS employee elective deferral limit for 401(k) plans for 2024 is $23,000, with an additional $7,500 catch-up contribution allowed for those age 50 and older.