Fundamental Payroll Certification Fundamental Payroll Involuntary and Voluntary Deductions 3

Question 1

Employee contributions made through a Section 125 cafeteria plan are exempt from which of the following taxes?

Accepted Answer

Federal income tax, Social Security, and Medicare taxes

Answer

Section 125 cafeteria plan deductions reduce wages subject to federal income tax, OASDI (Social Security), and HI (Medicare) taxes, providing a triple tax benefit.

Question 2

Which of the following voluntary deductions is typically taken on a POST-tax basis?

Accepted Answer

Union dues

Answer

Union dues are generally deducted after federal, state, and FICA taxes are calculated, so they do not reduce the employee's taxable income.

Question 3

An employee's traditional 401(k) contribution is exempt from which specific tax(es)?

Accepted Answer

Federal income tax only

Answer

Traditional 401(k) elective deferrals reduce federal (and most state) income taxable wages but remain fully subject to FICA (Social Security and Medicare) taxes.

Question 4

How does a Roth 401(k) contribution differ from a traditional 401(k) contribution?

Accepted Answer

Roth contributions are taken post-tax with tax-free qualified withdrawals

Answer

Roth 401(k) contributions are made with after-tax dollars, meaning they do not reduce current taxable income, but qualified distributions in retirement are completely tax-free.

Question 5

Which tax-advantaged account specifically requires the employee to be enrolled in a High Deductible Health Plan (HDHP)?

Accepted Answer

Health Savings Account (HSA)

Answer

An HSA requires HDHP enrollment as a prerequisite; it is triple-tax-advantaged (pre-tax contributions, tax-free growth, and tax-free qualified withdrawals).

Fundamental Payroll Certification Practice Test

Fundamental Payroll Certification Practice Test

Fundamental Payroll Certification Fundamental Payroll Involuntary and Voluntary Deductions 3