Fundamental Payroll Certification Fundamental Payroll Core Payroll Concepts 4 — Questions and Answers
Question 1: Under the Consumer Credit Protection Act (CCPA), the maximum amount that can be garnished from an employee's disposable earnings for ordinary creditor garnishments is:
- 10% of disposable earnings
- The lesser of 25% of disposable earnings or the amount by which earnings exceed 30 times the federal minimum wage (Correct answer)
- 50% of disposable earnings
- The lesser of 15% or $100
Correct answer: The lesser of 25% of disposable earnings or the amount by which earnings exceed 30 times the federal minimum wage
The CCPA limits ordinary creditor garnishments to the lesser of 25% of disposable earnings or the amount exceeding 30 times the federal minimum hourly wage.
Question 2: Section 125 Cafeteria Plans allow employees to pay for eligible benefits using:
- After-tax payroll deductions only
- Pre-tax dollars, reducing federal taxable income (Correct answer)
- Employer matching contributions only
- Post-tax dollars that are later reimbursed
Correct answer: Pre-tax dollars, reducing federal taxable income
Under IRC Section 125, cafeteria plans allow employees to choose among benefits and pay for eligible ones with pre-tax salary reductions, lowering their taxable wages.
Question 3: A Flexible Spending Account (FSA) for dependent care allows employees to contribute up to what annual limit (as of current IRS guidelines) per household?
- $2,750
- $5,000 (Correct answer)
- $10,000
- $3,000
Correct answer: $5,000
The IRS allows up to $5,000 per household ($2,500 if married filing separately) in pre-tax contributions to a Dependent Care FSA annually.
Question 4: Which type of garnishment has the highest priority when an employee is subject to multiple garnishments?
- Student loan garnishments
- Ordinary creditor garnishments
- Child support and alimony orders (Correct answer)
- IRS tax levies
Correct answer: Child support and alimony orders
Federal law gives child support and alimony garnishments (Title III of the CCPA) the highest priority over most other types of garnishments.
Question 5: Employer-provided group-term life insurance coverage exceeding $50,000 is:
- Fully excluded from income
- A non-taxable fringe benefit
- Taxable income to the employee based on IRS Table I rates (Correct answer)
- Subject only to state income tax
Correct answer: Taxable income to the employee based on IRS Table I rates
The cost of employer-provided group-term life insurance exceeding $50,000 must be included in the employee's gross income using the rates from IRS Table I.
Question 6: Health Savings Accounts (HSAs) may only be used by employees enrolled in:
- Any employer-sponsored health plan
- A High Deductible Health Plan (HDHP) (Correct answer)
- Medicare or Medicaid
- A PPO plan with no deductible
Correct answer: A High Deductible Health Plan (HDHP)
HSA eligibility requires enrollment in a qualified High Deductible Health Plan (HDHP); employees covered by other health plans generally cannot contribute to an HSA.
Question 7: When processing a federal tax levy (IRS Form 668-W), the amount EXEMPT from levy is determined by:
- The employee's gross wages
- A flat dollar amount set by Congress
- The number of exemptions claimed on the employee's statement of exemptions and filing status (Correct answer)
- The CCPA 25% rule
Correct answer: The number of exemptions claimed on the employee's statement of exemptions and filing status
The IRS provides Publication 1494 tables; the exempt amount from a federal tax levy is based on the employee's filing status and number of dependents claimed on the levy exemption statement.
Fundamental Payroll Certification Fundamental Payroll Core Payroll Concepts 4
Under the Consumer Credit Protection Act (CCPA), the maximum amount that can be garnished from an employee's disposable earnings for ordinary creditor garnishments is: