Fundamental Payroll Certification Fundamental Payroll Certification MCQ 4 — Questions and Answers
Question 1: What is the primary purpose of a Section 125 Cafeteria Plan?
- To provide employer-paid meals on a pre-tax basis
- To allow employees to choose among taxable and non-taxable benefits, reducing taxable income (Correct answer)
- To establish a health insurance marketplace for small businesses
- To defer executive compensation past retirement
Correct answer: To allow employees to choose among taxable and non-taxable benefits, reducing taxable income
A Section 125 Cafeteria Plan lets employees elect qualified benefits (like health insurance or FSAs) pre-tax, reducing their FICA and income tax liability.
Question 2: When an employer provides group-term life insurance coverage exceeding $50,000, the excess coverage cost is:
- Exempt from all taxes as a de minimis fringe benefit
- Taxable to the employee based on the IRS Uniform Premium Table (Table I) rates (Correct answer)
- Taxable only for employees earning more than $100,000
- Deducted dollar-for-dollar from the employee's paycheck
Correct answer: Taxable to the employee based on the IRS Uniform Premium Table (Table I) rates
Under IRC Section 79, the cost of employer-provided group-term life insurance over $50,000 is included in the employee's wages using IRS Table I rates.
Question 3: A non-exempt salaried employee earns $900/week and works 44 hours. What is their overtime pay using the regular rate method?
- $20.45
- $50.63
- $40.91 (Correct answer)
- $81.82
Correct answer: $40.91
Regular rate = $900 ÷ 44 hrs = $20.45/hr; overtime premium = $20.45 × 0.5 × 4 hrs = $40.91 (salary already covers straight-time for all hours worked).
Question 4: Which of the following correctly defines 'disposable earnings' for garnishment purposes under the CCPA?
- Gross wages before any deductions
- Wages remaining after mandatory legal deductions (taxes, Social Security, Medicare) (Correct answer)
- Net pay after all voluntary deductions including 401(k) contributions
- Total compensation including tips and bonuses only
Correct answer: Wages remaining after mandatory legal deductions (taxes, Social Security, Medicare)
Disposable earnings are the amount left after legally required deductions (taxes, Social Security, Medicare, state unemployment) but before voluntary deductions like health insurance or 401(k).
Question 5: An employee elects to defer $23,000 into a 401(k) plan in 2024. This deferral reduces which taxes?
- Federal income tax only (Correct answer)
- Federal income tax, Social Security, and Medicare taxes
- Federal income tax and Social Security tax only
- No taxes — 401(k) deferrals are always taxable when contributed
Correct answer: Federal income tax only
Traditional 401(k) deferrals reduce federal (and usually state) income tax but do NOT reduce Social Security or Medicare (FICA) taxes.
Question 6: Which payroll concept describes the practice of paying employees for time spent in mandatory pre-shift activities like donning protective gear?
- De minimis time exclusion
- Preliminary or postliminary activity
- Principal activity rule and compensable work time (Correct answer)
- Portal-to-Portal Act exemption
Correct answer: Principal activity rule and compensable work time
Under the Portal-to-Portal Act, principal activities — including mandatory gear donning that is integral to the job — are compensable work time and must be paid under FLSA.
Question 7: Which IRS test is used to determine whether a worker is an employee or an independent contractor for federal tax purposes?
- The ABC Test
- The Common Law Control Test (Correct answer)
- The Economic Realities Test
- The Safe Harbor Bright-Line Test
Correct answer: The Common Law Control Test
The IRS applies the Common Law Control Test, examining behavioral control, financial control, and the type of relationship to determine worker classification.
Fundamental Payroll Certification Fundamental Payroll Certification MCQ 4
What is the primary purpose of a Section 125 Cafeteria Plan?