CPS Payroll Administration & Taxation 3 — Questions and Answers
Question 1: An employer pays an employee a $5,000 moving expense reimbursement in 2026. How is this taxed under current law?
- Fully taxable as wages subject to all payroll taxes (Correct answer)
- Fully excludable from gross income if qualified
- Excludable only up to $2,500
- Subject to FICA but not federal income tax withholding
Correct answer: Fully taxable as wages subject to all payroll taxes
The Tax Cuts and Jobs Act of 2017 suspended the moving expense exclusion for most employees through 2025, making reimbursements fully taxable wages.
Question 2: Which of the following correctly describes the 'accountable plan' rule for expense reimbursements?
- Employee must have a business connection, substantiate expenses, and return any excess (Correct answer)
- Employer sets a fixed daily allowance with no documentation required
- All reimbursements under $75 are automatically non-taxable
- Employee submits receipts only for amounts over $100
Correct answer: Employee must have a business connection, substantiate expenses, and return any excess
An accountable plan requires business connection, adequate substantiation within a reasonable period, and return of excess advances.
Question 3: What is the maximum amount of employer-provided dependent care FSA benefits that can be excluded from an employee's income in 2024?
- $5,000 ($2,500 if married filing separately) (Correct answer)
- $10,000
- $3,000 for one child
- $7,000
Correct answer: $5,000 ($2,500 if married filing separately)
The dependent care FSA exclusion limit is $5,000 per household ($2,500 for married filing separately).
Question 4: An employer fails to deposit payroll taxes on time. The failure-to-deposit penalty for deposits 6-15 days late is:
- 5% of the undeposited amount (Correct answer)
- 2% of the undeposited amount
- 10% of the undeposited amount
- 15% of the undeposited amount
Correct answer: 5% of the undeposited amount
The IRS penalty for deposits that are 6 to 15 days late is 5% of the undeposited tax amount.
Question 5: Which test does the IRS use FIRST to determine if a worker is an employee or independent contractor?
- Behavioral control test (Correct answer)
- Financial control test
- Type of relationship test
- Economic reality test
Correct answer: Behavioral control test
The IRS common-law test evaluates behavioral control first, examining whether the company controls how work is performed.
Question 6: A nonresident alien employee on a visa has not submitted a Form W-4. What withholding must the employer apply?
- Single with no adjustments, plus an additional amount per IRS instructions for NRAs (Correct answer)
- Married filing jointly with zero allowances
- Standard single rate with no adjustments
- The maximum flat 30% rate
Correct answer: Single with no adjustments, plus an additional amount per IRS instructions for NRAs
Nonresident aliens who don't submit a W-4 are withheld at single with no adjustments, plus the NRA additional withholding amount per IRS Publication 15-T.
Question 7: What document must an employer complete and retain to verify an employee's identity and work authorization under the Immigration Reform and Control Act?
- Form I-9 (Correct answer)
- Form W-9
- Form SS-4
- Form I-551
Correct answer: Form I-9
Form I-9 must be completed for every new hire to verify identity and employment eligibility under IRCA.
CPS Payroll Administration & Taxation 3
An employer pays an employee a $5,000 moving expense reimbursement in 2026.
How is this taxed under current law?