Fundamental Payroll Certification Fundamental Payroll Certification 4 — Questions and Answers
Question 1: Imputed income from employer-paid group term life insurance is taxable when coverage exceeds:
- $25,000
- $50,000 (Correct answer)
- $100,000
- $150,000
Correct answer: $50,000
Under IRC Section 79, employer-paid group term life insurance coverage above $50,000 creates imputed income subject to FICA and federal income tax.
Question 2: An employee's pay is levied by the IRS. Compared to a commercial creditor garnishment, the exempt amount for an IRS levy is determined by:
- A flat 25% cap identical to CCPA
- Publication 1494 (exempt amount tables based on filing status and dependents) (Correct answer)
- State law only
- No exemption — 100% can be levied
Correct answer: Publication 1494 (exempt amount tables based on filing status and dependents)
IRS levies use Publication 1494 tables to calculate the exempt amount, which depends on the employee's filing status and number of dependents.
Question 3: The Medicare surtax (Additional Medicare Tax) of 0.9% applies to wages exceeding what threshold for a single filer?
- $125,000
- $200,000 (Correct answer)
- $250,000
- $500,000
Correct answer: $200,000
Employers must withhold the additional 0.9% Medicare tax once an employee's wages exceed $200,000 in a calendar year, regardless of filing status.
Question 4: What is the primary purpose of a Section 125 Cafeteria Plan?
- To provide taxable fringe benefits to executives
- To allow employees to choose pre-tax benefits, reducing federal income and FICA taxes (Correct answer)
- To fund employer 401(k) matching contributions
- To defer compensation past normal retirement age
Correct answer: To allow employees to choose pre-tax benefits, reducing federal income and FICA taxes
A Section 125 Cafeteria Plan allows employees to pay for qualified benefits like health insurance and FSAs with pre-tax dollars, lowering taxable wages.
Question 5: Under FLSA, which of the following employees is most likely EXEMPT from overtime pay requirements?
- A non-supervisory warehouse worker earning $15/hour
- A bona fide executive earning a $700 weekly salary who manages 5 employees (Correct answer)
- A part-time retail associate earning $12/hour
- A full-time manufacturing line worker earning $50,000 annually
Correct answer: A bona fide executive earning a $700 weekly salary who manages 5 employees
The FLSA white-collar exemption applies to bona fide executives who meet the salary threshold and primarily manage the enterprise or a department.
Question 6: Which of the following describes a Flexible Spending Account (FSA) characteristic?
- Balances automatically roll over to the next year with no limit
- Contributions are post-tax but withdrawals are tax-free
- Unused balances are typically forfeited under the 'use-it-or-lose-it' rule (Correct answer)
- Only the employer can contribute to an FSA
Correct answer: Unused balances are typically forfeited under the 'use-it-or-lose-it' rule
Health FSAs generally follow the use-it-or-lose-it rule, meaning unused funds at year-end are forfeited unless a grace period or limited rollover applies.
Question 7: When must an employer provide employees with their annual W-2 forms?
- By January 15 of the following year
- By January 31 of the following year (Correct answer)
- By February 28 of the following year
- By March 15 of the following year
Correct answer: By January 31 of the following year
Employers must furnish W-2 forms to employees by January 31 of the year following the calendar year in which wages were paid.
Fundamental Payroll Certification Fundamental Payroll Certification 4
Imputed income from employer-paid group term life insurance is taxable when coverage exceeds: