Fundamental Payroll Certification Payroll Benefits and Retirement Plans 2 — Questions and Answers
Question 1: A Health Savings Account (HSA) can only be opened by an employee enrolled in which type of health plan?
- PPO
- HMO
- High-Deductible Health Plan (HDHP) (Correct answer)
- Any employer-sponsored health plan
Correct answer: High-Deductible Health Plan (HDHP)
HSA eligibility requires enrollment in a qualified High-Deductible Health Plan (HDHP) as defined by the IRS.
Question 2: What is the key difference between a Flexible Spending Account (FSA) and a Health Savings Account (HSA)?
- FSAs allow higher contribution limits
- HSA funds roll over year to year while FSA funds generally do not (Correct answer)
- FSAs require HDHP enrollment
- HSAs are employer-funded only
Correct answer: HSA funds roll over year to year while FSA funds generally do not
Unlike FSAs which have a 'use-it-or-lose-it' rule, HSA balances roll over indefinitely and can accumulate long-term.
Question 3: Under Section 125, a cafeteria plan allows employees to choose between which of the following?
- Multiple employers
- Taxable cash and qualified non-taxable benefits (Correct answer)
- Federal and state tax exemptions
- Pre-tax and Roth retirement contributions
Correct answer: Taxable cash and qualified non-taxable benefits
A Section 125 cafeteria plan permits employees to select between taxable cash compensation and qualified non-taxable benefit options.
Question 4: Which of the following is a qualified benefit that can be offered through a Section 125 cafeteria plan?
- Group-term life insurance over $50,000
- Athletic facility memberships
- Dependent care FSA (Correct answer)
- Employer-provided parking above IRS limits
Correct answer: Dependent care FSA
Dependent care FSAs are a qualified Section 125 benefit allowing employees to pay for childcare expenses with pre-tax dollars.
Question 5: COBRA continuation coverage allows a qualified beneficiary to continue group health coverage for up to how many months after most qualifying events?
- 12 months
- 18 months (Correct answer)
- 24 months
- 36 months
Correct answer: 18 months
COBRA generally provides up to 18 months of continuation coverage for employees and their dependents after most qualifying events such as job loss.
Question 6: Employer contributions to an employee's HSA are treated as which of the following for tax purposes?
- Subject to federal income tax only
- Excluded from the employee's gross income (Correct answer)
- Treated as taxable wages on the W-2
- Subject to FICA taxes
Correct answer: Excluded from the employee's gross income
Employer HSA contributions are excluded from the employee's gross income and are not subject to federal income, Social Security, or Medicare taxes.
Fundamental Payroll Certification Payroll Benefits and Retirement Plans 2
A Health Savings Account (HSA) can only be opened by an employee enrolled in which type of health plan?