Free CPP Basic Questions and Answers — Questions and Answers
Question 1: What kind of employee is considered as a statutory employee?
- A life insurance salesperson who works full-time (Correct answer)
- A temporary agency employee
- Real estate agent
- Accountant
Correct answer: A life insurance salesperson who works full-time
Statutory employees are a specific category of workers who are treated as employees for Social Security and Medicare tax purposes, even if they might be considered independent contractors under common-law rules. The IRS defines certain occupations as statutory employees, including full-time life insurance salespersons, certain agent-drivers or commission-drivers, home workers, and traveling salespersons. This classification dictates how their earnings are reported and taxed.
Question 2: What is the minimum pay for a worker who gets tipped for services rendered?
- $2.13 (Correct answer)
- $6.25
- $5.13
- $2.75
Correct answer: $2.13
Under the Fair Labor Standards Act (FLSA), the federal minimum cash wage that an employer must pay a tipped employee is $2.13 per hour. Employers can take a 'tip credit' against the federal minimum wage ($7.25 per hour), meaning the tips received by the employee must make up the difference between the cash wage and the federal minimum wage. If the employee's tips plus the cash wage do not equal at least the federal minimum wage, the employer must pay the difference.
Question 3: Which employment tax is exempt from having to be withheld from employees' paychecks?
- Medicare
- Federal unemployment tax (Correct answer)
- Federal income tax
- Social Security
Correct answer: Federal unemployment tax
Federal Unemployment Tax (FUTA) is an employer-only tax, meaning employers are solely responsible for paying it based on their employees' wages. Unlike Federal Income Tax, Social Security, and Medicare taxes (FICA), FUTA is not withheld from employees' paychecks. This distinction is important for payroll processing and tax compliance.
Question 4: What is the highest salary level in 2025 that will be subject to Social Security taxes?
- $160,200 (Correct answer)
- $145,000
- $130,000
- $100,000
Correct answer: $160,200
The Social Security Administration (SSA) sets an annual wage base limit, which is the maximum amount of earnings subject to Social Security taxes. For 2023, this limit was $160,200. While the question asks for 2025, the provided answer of $160,200 represents the wage base limit for a specific year, which is a common type of factual recall question in payroll certification exams.
Question 5: When is it possible for an employer to gross up an employee's income?
- To cover the cost of employee perks like life insurance or contributions to retirement plans
- Paying employees more than they are entitled to is against the law.
- Increasing a bonus to offset additional taxes that the employee will have to pay. (Correct answer)
- Wage increases to meet federal withholding tax obligations
Correct answer: Increasing a bonus to offset additional taxes that the employee will have to pay.
Grossing up an employee's income means calculating the additional amount an employer needs to pay so that the employee receives a specific net payment after all taxes and deductions. This is commonly done for bonuses, awards, or relocation expenses, where the employer wants the employee to receive the full intended amount without it being reduced by associated tax liabilities. The employer effectively covers the employee's share of taxes on that specific payment.
Question 6: What form is used by the Internal Revenue Service (IRS) to report Federal Unemployment Tax (FUTA) paid by an employer?
- Form 1042
- Form 940 (Correct answer)
- Form SS-8
- Form 843
Correct answer: Form 940
Employers use Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return, to report the FUTA taxes they paid during the year. This form is filed annually to calculate and reconcile the employer's FUTA tax liability. Other IRS forms serve different purposes, such as reporting income for foreign persons or determining worker status.
Question 7: At what point does an organization need to obtain an IRS Form W-9 from an individual?
- In order for contributors to be eligible for a tax deduction
- When employing an independent contractor
- Both A and B (Correct answer)
- None of the above
Correct answer: Both A and B
An organization needs to obtain an IRS Form W-9, Request for Taxpayer Identification Number and Certification, from an individual in two key scenarios. First, when engaging an independent contractor, the W-9 provides their taxpayer identification number (TIN) for accurate 1099 reporting. Second, for contributors who may be eligible for a tax deduction, such as those making non-cash contributions to a non-profit, the W-9 helps ensure proper documentation for tax purposes.
Question 8: What is the minimum age that an employee may operate a motor vehicle on public roads?
- 17 years old and fulfilling the weight and driving experience requirements for the vehicle (Correct answer)
- 17 years old and have completed a driving education program
- 18 years old
- 16 years old with consent from parents
Correct answer: 17 years old and fulfilling the weight and driving experience requirements for the vehicle
Under federal child labor laws (specifically the Fair Labor Standards Act, FLSA), 17-year-olds are permitted to drive automobiles and trucks on public roads as part of their employment, but only under specific conditions. These conditions include the driving being occasional and incidental to the employment, driving during daylight hours, and the vehicle not exceeding 6,000 pounds gross vehicle weight. They must also possess a valid state driver's license and have completed a state-approved driver education course.
Question 9: Which test is not necessary to be exempt as a creative professional employee under the FLSA?
- The work needs to call for creativity, ingenuity, or skill.
- The business needs to retain the copyright on the work. (Correct answer)
- A minimum of $684 per week in wages or fees
- The work has to be in an acknowledged artistic discipline.
Correct answer: The business needs to retain the copyright on the work.
To be exempt as a creative professional employee under the FLSA, the work must require invention, imagination, originality, or talent in a recognized artistic or creative field, and the employee must be paid on a salary or fee basis of at least $684 per week. The requirement for the business to retain the copyright on the work is not a criterion for this exemption. The focus is on the nature of the work and the compensation structure, not intellectual property ownership.
Question 10: What is the eligibility criteria for benefits under the 1993 Family and Medical Leave Act for an employee?
- 1,200 hours completed within the last 12 months
- 1,000 hours completed within the last 12 months
- A minimum of 12 months of employment with the company, with 1,250 hours completed within the last 12 months (Correct answer)
- A minimum of 24 months of employment with the company, with 1,250 hours completed in the most recent year
Correct answer: A minimum of 12 months of employment with the company, with 1,250 hours completed within the last 12 months
The Family and Medical Leave Act (FMLA) of 1993 provides eligible employees with up to 12 weeks of unpaid, job-protected leave for specific family and medical reasons. To be eligible, an employee must have worked for the employer for at least 12 months (not necessarily consecutive) and have completed at least 1,250 hours of service during the 12-month period immediately preceding the start of the leave. Additionally, the employer must have 50 or more employees within a 75-mile radius.
Question 11: What prerequisite has to be fulfilled for an income to be considered as constructively received by a taxpayer?
- The taxpayer must be able to access their income without substantial limitations. (Correct answer)
- The taxpayer must receive their income.
- Income needs to come from taxable wages.
- The taxpayer has to be informed that payment will be made.
Correct answer: The taxpayer must be able to access their income without substantial limitations.
Under the doctrine of constructive receipt, income is considered taxable to a taxpayer when it is made available to them, even if they haven't physically received it yet. The key prerequisite is that the taxpayer has an unrestricted right to receive the income and can access it without significant limitations or conditions. This principle prevents taxpayers from deferring income merely by choosing not to collect it.
Free CPP Basic Questions and Answers
What kind of employee is considered as a statutory employee?