OCPS Case Analysis & Practical Application 3 — Questions and Answers
Question 1: A payroll manager receives a creditor garnishment for an employee whose disposable earnings are $600/week. Under federal CCPA limits, what is the maximum that can be garnished?
- $150 (Correct answer)
- $300
- $200
- $600
Correct answer: $150
Under CCPA, the maximum for a creditor garnishment is the lesser of 25% of disposable earnings ($150) or the amount exceeding 30 times the federal minimum wage.
Question 2: An employee receives a $5,000 non-accountable plan expense reimbursement. How should payroll treat this amount?
- Exclude it from income entirely
- Include it in wages and withhold taxes (Correct answer)
- Report it on Form 1099-NEC
- Treat it as a tax-free fringe benefit
Correct answer: Include it in wages and withhold taxes
Non-accountable plan reimbursements are included in the employee's wages and subject to withholding and payroll taxes.
Question 3: An employer wants to implement direct deposit but an employee refuses. What is the employer obligated to do?
- Terminate the employee for non-compliance
- Provide an alternative payment method allowed by state law (Correct answer)
- Charge the employee a processing fee
- Mandate direct deposit regardless of employee preference
Correct answer: Provide an alternative payment method allowed by state law
Most state laws require employers to offer an alternative to direct deposit if an employee objects, such as a paper check or pay card.
Question 4: A company transitions from weekly to biweekly payroll mid-year. Which document must be updated immediately to reflect the new withholding amounts?
- Form W-2
- IRS Publication 15-T withholding tables (Correct answer)
- Form 1099-MISC
- Form I-9
Correct answer: IRS Publication 15-T withholding tables
IRS Publication 15-T provides withholding tables that correspond to payroll frequency, so the new biweekly tables must be used.
Question 5: An employee is paid a draw against future commissions of $2,000. That pay period the employee earns $1,500 in commissions. How is the $500 deficit treated?
- Written off immediately as a business expense
- Carried forward as a recoverable advance against future earnings (Correct answer)
- Deducted from the employee's vacation accrual
- Reported as a separate taxable fringe benefit
Correct answer: Carried forward as a recoverable advance against future earnings
A draw against commissions creates a recoverable advance; the $500 deficit is carried forward and offset against future commission earnings.
Question 6: During an audit, an auditor finds that a worker classified as an independent contractor meets the IRS common-law test for employee status. What is the primary risk to the employer?
- Loss of corporate charter
- Back payroll taxes, penalties, and interest for uncollected FICA and income tax (Correct answer)
- Criminal prosecution of the HR manager
- Mandatory arbitration with the worker
Correct answer: Back payroll taxes, penalties, and interest for uncollected FICA and income tax
Misclassification exposes employers to back payroll taxes, FICA contributions, and potential penalties and interest assessed by the IRS.
Question 7: A cafeteria plan allows employees to pay health insurance premiums pre-tax. Under which IRS code section is this permitted?
- Section 401(k)
- Section 125 (Correct answer)
- Section 403(b)
- Section 457
Correct answer: Section 125
IRC Section 125 authorizes cafeteria plans that allow employees to choose between taxable and non-taxable benefits, including pre-tax premium payments.
OCPS Case Analysis & Practical Application 3
A payroll manager receives a creditor garnishment for an employee whose disposable earnings are $600/week.
Under federal CCPA limits, what is the maximum that can be garnished?